Iron ore rebound returns hope to the industry

With China recently revealing its new measures to secure its control on the stock market, Australian miners rejoiced as the price of iron ore increased almost 10 percent.

The commodity rebounded after a 10 per cent drop just one day earlier, making it the largest single-day fall and rise ever in a 48-hour period. BHP Billiton went up nearly three percent, while Rio Tinto saw a 2.32 percent increase and Fortescue Metals rose 1.68 percent.

This latest development will have a big impact on revenue for both Australia and China, as Australia is the world’s largest supplier of iron ore—which is key to making steel—while China is the Aussie’s top customer.

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Increased supply in recent months along with a decrease in Chinese demand has had iron ore on a steady decline. Even with the latest 10 percent spike, the majority of smaller Aussie miners will still be producing at a loss, forcing many cut costs.

Meanwhile, Rio Tinto believes the long-term market for iron ore is stable and will continue to produce a good amount of revenue in Australia. After providing its second-quarter operations review, Rio noted iron ore production and shipment increased compared to 2014 despite unseasonal, severe weather in Western Australia that included two tropical cyclones that lost about seven million tonnes.

In addition, Rio had record first-half production and sales of 146.3 million tonnes and 146.5 million tonnes respectively from its Pilbara site. The company also expects to increase its production capacity to 340 million tonnes, which would be up 15 percent from 2014, as the company completes key parts of its infrastructure that will support expansion.

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“The focus is now to ramp up the new equipment to full capacity and generate maximum value from the integrated system,” said Rio in a statement.

This has led Rio to persuade investors that being the producer with the lowest cost will pay off down the line as higher-cost producers continue to leave the market. The company’s share price goes in line with the spot price of iron ore in Asia, which isn’t a surprise since the commodity makes up about 90 percent of the company’s revenue.

As it is, iron ore producers will continue to be in competition in a shrinking market.

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