You’ll all recall my view that the iron ore price is going lower for longer and bearishness about the ultimate fate of Fortescue Metals. The FT’s Lex column has produced a video that makes similar points and especially explores a dynamic that is very much worth remembering. Small iron ore miners like Atlas generally just scoop the dirt of the ground and truck it out using third party infrastructure. They will disappear quickly and relatively painlessly. But larger producers, those that have used debt to invest heavily in infrastructure, are more likely to continue to produce come what may, even if seized by creditors, given the sunk costs. This can mean that iron ore over-supply runs on, and on, and on…
It is a dynamic that is also worth keeping in mind for the future of LNG.
Meanwhile, from Bloomie, Rio Tinto Group Chief Executive Officer Sam Walsh is busy taunting his high-cost brethren:
“We are the lowest-cost producer in the world with costs of $20 per ton compared to the price around $92 a ton; I think we’ll be OK,” the 64-year-old Australian said today in aninterview with Bloomberg Television. “I don’t think we’re goingto go down to $80 or else a lot of my friendly competitors are going to disappear.”
Careful what you wish for, Sam. Video here.
