Doomed Iron Ore Market Spurs Cliffs to Speed Australia Mine Exit

The seaborne iron ore market is a “horrible business” that’s prompting the largest U.S. iron ore producer to speed its exit from mines in Australia.

The “market is doomed, is cursed, is a place not to be in, I can’t wait to get out of Australia. That’s the bottom line,” Cliffs Natural Resources Inc. Chairman and Chief Executive Officer Lourenco Goncalves said on a conference call. “I already shut down completely in Canada, and as soon as I get to the end of life of mine in Australia, I’m out of there.”

Australia is the world’s biggest exporter of iron ore.

The Cleveland-based company halted production at its Bloom Lake mine in Canada in January and is looking for a buyer for its Australian iron ore business. It will speed its exit from Australia by a year by shutting one of the three pits at its operation, Goncalves said on its first-quarter earnings call Wednesday.

Iron ore has tumbled 47 percent in the past year as the expansion of low-cost supply by the largest producers outpaces demand growth and moves by competitors to close higher-cost output.

The moves by BHP Billiton Ltd., Rio Tinto Group and Vale SA to increase market share in the face of the price rout has earned the ire of some investors, political leaders and loss-making rivals. BHP has described the tactic as “squeezing the lemon.”

Three Majors

“None of the three majors can continue to support their massive capex needs without allowing iron ore price to increase,” Goncalves said. “And if they still decide to keep iron ore prices artificially low, as they have been doing so far, their advertised massive capacity increases will not materialize due to insufficient cash flow generation.”

BHP spokeswoman Emily Perry declined to comment. Rio Tinto spokesman Bruce Tobin didn’t immediately respond to a request for comment.

A price rally since early April will be capped by mid-year as more lower cost supply is added to the seaborne market, Morgan Stanley analysts wrote in an April 29 note.

Rio is seeking to raise shipments to 350 million tons this year, while BHP said this month it will continue to lift output to 290 million tons, though at a slower pace than previously planned.

Iron ore with 62 percent content at Qingdao declined 4.6 percent Wednesday to $57.13 a dry metric ton. It dropped to $47.08 on April 2, the lowest level since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks from Clarkson Plc

Rio and BHP are “playing the game of scaring everybody else,” Goncalves said. “Some people are getting really scared. Some others are not, some others are acting.”

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