BC Iron managing director Morgan Ball says Chinese steelmaking demand for iron ore and Chinese iron ore producers may provide a floor upon which global iron ore prices may stabilise at between $US110-$US130 a tonne for the next 12 months.
Even if Chinese economic slips from to 5-6 per cent from a stated goal of 7.5 per cent, Ball expects China to import as much Australian iron ore as it does at present. Chinese demand for steel for use in urban construction will still be strong even if growth slows, he says.
BC Iron, which produced 5 million tonnes of iron ore in the 12 months to June 30, may produce as much as 6 million tonnes in the next 12 months. The company forecasts its operating costs at between $US46 and $US50 a tonne in the 12 months to June 30, 2014. BC Iron’s revenue per tonne is essentially determined by the Platts IODEX 62 per cent iron content spot price, which is currently $US116.75 a tonne.
Chinese iron ore producers typically sell their product at between $US100 and $US110 a tonne, says Ball. If the iron ore price falls below that range then more non-Chinese iron ore is bought by Chinese steel mills, potentially boosting global iron ore prices, he says. This analysis “potentially gives a floor to the iron ore price”, says Ball.
At 1457 AEST BC Iron’s shares rose 8 cents, or 12.5 per cent, to $3.28 after rising as much as 2.8 per cent to $3.29.
Fortescue has a 25 per cent stake in BC Iron’s Nullagine iron ore project in the Pilbara region of northwest Western Australia. BC Iron uses Fortescue’s rail infrastructure to transport its product to Port Headland from where it is shipped to China.
In the 12 months to June 30, the Port Hedland Port Authority reported a record tonnage throughput of 288.4 million tonnes, an increase of 17 per cent from the previous year.