Australia’s Atlas Suspends Output on Iron Ore Price CollapseDavid Stringer
Atlas Iron Ltd., Australia’s fourth-largest iron ore supplier, will suspend all operations this month in response to a slump in prices to their lowest in a decade.
The company is the biggest casualty in Australia of a collapse in the price of the steelmaking material, caused by a glut in supply and cooling demand in China, its largest consumer. Australia, led by Rio Tinto Group and BHP Billiton Ltd., is the world’s top exporter of iron ore.
“This is something of a watershed moment,” said Paul Gait, a London-based analyst at Sanford C. Bernstein Ltd. “It’s the first of the producing Australian miners from the best supply location to close.”
Atlas, which had forecast output in the year through June of as much as 13 million metric tons, said its operations are no longer viable and would be put into care and maintenance, pending future market conditions, according to a statement. Discussions with creditors have begun, the Perth-based company said.
Output at Mt Webber will halt next week, its Abydos project is scheduled to cease within 14 days, while the Wodgina mine will be closed in late April, Atlas said. Its operations are in Australia’s iron-ore rich Pilbara region.
Iron ore has plunged 59 percent in the past year as larger, lower-cost producers, including BHP and Brazil’s Vale SA, raised output just as growth slowed in China. Global iron ore demand will contract this year, according to Deutsche Bank AG.
“To suspend our operations, with the impact that will have on so many committed and talented people, is an extremely difficult decision,” Managing Director Ken Brinsden said in the statement. The producer employs about 575 staff and contractors.
Atlas, the second-worst performing Australian mining company in the past year, suspended its shares from trading on Tuesday, saying it was reviewing operations in response to the price plunge. It had targeted annual savings of as much as A$120 million ($91 million) by June, according to a February filing.
Rio Tinto, the world’s second-biggest iron ore supplier, forecasts 80 million tons of higher-cost iron ore production will exit the world market in 2015, with a further 85 million tons vulnerable to lower prices. In its statement, Atlas said the timing of a recovery remains unclear.
The producer’s decision to halt its output isn’t likely to spur a rally in the steelmaking ingredient’s price, according to Bernstein’s Gait. A global seaborne surplus is forecast to grow to 184 million in 2018 from 55 million tons this year, Morgan Stanley estimates.
“It’s a positive for iron ore, but it doesn’t mean to say that the price will go up,” Gait said by phone. “What it means is that the price will be higher than it otherwise would have been -- if it falls again, it won’t fall as far.”
Ore with 62 percent content at Qingdao rose 0.6 percent to $48.34 a dry ton on Thursday, according to Metal Bulletin Ltd. Prices fell to $47.08 on April 2, the lowest since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks for ore delivered to China compiled by Clarkson Plc.
Atlas said it is now in talks with its creditors on options that would enable its mines to restart as efficiently as possible if an operating margin can be re-established.
The producer had drawn down $269.5 million of its December 2017 U.S. term loan facility as of Dec. 31, it said in a February filing. Net debt increased by A$131.4 million to A$169 million in the final six months of 2014 as iron ore prices plunged and the Aussie dollar fell, Atlas said.
Atlas had its credit ratings cut by two steps and put on review for further possible downgrades by both Moody’s Investors Service and Standard & Poor’s on April 7. S&P reduced its score to CCC, eight steps below investment grade, while Moody’s took it down two notches to Caa3, the equivalent of one level lower.