A couple of notes today make clear just how far iron ore costs have fallen and therefore prices will keep falling. From Macquarie:
Aurizon have stated that they are in discussions with Karara Mining about reducing rates in the face of record-low commodity prices. We believe this will ultimately extend to include Cliffs Natural Resources and Mount Gibson Iron for an estimated annual volume of 24 Mt. However, we anticipate that Australian coal miners would see this announcement and expect the same treatment from both Asciano and Aurizon. Impact
Take-or-pay contracts loom large. We believe take-or-pay contracts with infrastructure providers (rail and ports) have been artificially keeping assets open that are otherwise loss-making. Despite losing money on a cash basis, these losses are less than those they would incur from shutting the operation but still being forced to continue to pay out these contracts. We estimate that if transport costs were cut by 25% for both above and below rail costs, the average cost for producers would drop by A$3.30/t, but in some cases would be more than A$5/tonne.
