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Iron Ore's Big Guns Seize Greater Share of Trade With China

Updated on
  • Australian cargoes to top buyer rise to 64% in 2015 from 59%
  • Brazilian miners increase share of imports to 20% from 18%

In the iron ore wars, the big are getting bigger and the small are getting squeezed.

Cargoes from Australia, the top exporter, accounted for 64 percent of China’s imports last year from 59 percent in 2014 and 51 percent the year before, according to customs data on Tuesday and Bloomberg calculations. Brazil’s share rose to 20 percent in 2015, 2 percentage points higher than in 2014.

The figures signal that the strategies pursued by Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil’s Vale SA of raising output to defend market share may be paying off as prices tumble. Iron ore sank 39 percent last year as supply topped demand, growth slowed in China and lower energy costs and producer currencies enabled miners to pare costs.

“This fight for market share, this fight for survival, the big producers are doing very well,” Ralph Leszczynski, the Singapore-based head of research at shipbroker Banchero Costa & Co., said in an interview before the data. “With freight and bunker prices so cheap now, that’ll probably help Brazil,” he said, predicting that the country’s market share in China will expand this year.

In tonnage terms, sales by Australian miners to China rose 11 percent to 607.4 million metric tons last year from 2014, while shipments from Brazilian producers expanded 12 percent to 191.6 million tons. The rest-of-the world’s share dropped to about 16 percent from 23 percent.

Prices Slump

The raw material trades at less than a quarter of its 2011 peak, and last month retreated a new low of $38.30 a dry ton in daily prices dating to 2009. Ore with 62 percent content delivered to the Chinese port of Qingdao was at $41.08 a ton on Tuesday, according to Metal Bulletin Ltd.

The collapse in prices has pushed some producers to the brink, Rio Chief Executive Officer Sam Walsh told Bloomberg last month. A lot of producers “we believed would leave the market that are hanging on by their fingernails,” Walsh said, predicting that “sooner or later the adjustment will take place.”

Higher-cost miners in mainland China as well as in exporting nations have shuttered operations as the rout deepened. The pace of mine closures and production cuts will probably accelerate this year and there’ll be a smaller number of producers toward the end of the decade, Goldman Sachs Group Inc. said in a report last month.

China’s dependency on imported ore is “really high” and will probably continue to rise, according to Morgan Stanley. The share of imports may increase to 90 percent this year from 81 percent in 2015 and about 50 percent in 2005, analyst Tom Price in London wrote in a note received Tuesday.

(Updates prices in sixth paragraph.)
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