by Chris Becker
Here’s the latest price update from the iron ore complex, with spot prices up nearly 1% bringing the current rally close to a bull market response (i.e 20% plus) while Dalian futures also edged but the 12 monthly SGX price retreated:
Aussie extractors are getting even better margins as the price keeps climbing from its recent low. More from FNArena:
Macquarie reviews the iron ore industry’s cost curve and notes costs for delivered ore have changed little. The seaborne marginal cost is still set by the low-grade producers in India, Iran and Australia. The broker calculates that, at US$50/t, up to 90% of the market remains cash positive. Macquarie calculates an average break-even price of US$51/t for Fortescue Metals in 2018.
Of note, a pull back in grade price differentials in the December quarter occurred and a correction in China’s steel industry margins has benefited Australian producers at the end of 2018.
Macquarie also expects Fortescue to move lower on the cost curve in 2019/20 as its product mix improves, with the proportion of higher grade fines rising to almost 25% once Eliwana reaches full production. The stock is trading at a significant discount to Macquarie’s spot price valuation with significant upside potential at current commodity prices and exchange rates.