Vale’s Carajás iron ore complex, located in a remote corner of the Amazon rainforest.
Iron ore prices got hammered again Friday, sinking to a 10-year-low of $39.40 a tonne, the lowest ever recorded by price assessor The Steel Index (TSI), which began compiling data in 2008.
Prices were set for their steepest weekly drop in five months
According to Metal Bulletin, the spot price for benchmark 62% fines traded Friday just above the critical $40/tonne mark (at $40.03). Prices were set for their steepest weekly drop in five months as declining Chinese steel demand keeps adding to a global oversupply of the steelmaking raw material.
Iron ore has not traded this low since around 2007, when annual contract pricing between the Big 3 producers — Vale, Rio Tinto and BHP Billiton — and Chinese and Japanese steelmakers were still the industry norm.
Brazil’s Vale (NYSE:VALE), the world’s largest producer, cut its forecast for 2016 shipments by 10% due to outages at Samarco, but it remains on track to add 100 million tonnes of capacity compared with 2015 levels within just three years.
Number two Rio Tinto (LON:RIO) is well on its way to reach 360 million tonnes in the next few years, while BHP Billiton (ASX:BHP) is on target to grow capacity to 290 million tonnes per year some time during 2017. Chief executive Andrew Mackenzie said Thursday that the only way to compete in a world where there was ample capacity to meet the needs of countries like China was to keep cutting costs, which means prices will keep coming down.
“That is the spirit of competition that we play in,” he said according to Reuters.
His comments are in line with Goldman Sachs’ predictions. Last month, the investment bank warned that prices for most commodities, particularly iron ore, had not yet bottomed.