(Minews) - Brazil’s Vale SA, the largest exporter of steel-making iron ore, has usurped its two nearest rivals to become the lowest-cost producer as a slump in the price of oil cuts shipping costs, according to Sanford C. Bernstein Ltd.
“In the last few months we have seen the price for bunker fuel collapse in lock-step with the decline in the global oil price and with it a reordering of the cost position of the global iron-ore industry has taken place,” Paul Gait, an analyst at Bernstein in London, wrote today in a report. Rio Tinto Group and BHP Billiton Ltd. are the biggest exporters after Vale. Their Australian mining hubs have traditionally held a cost advantage over Vale due to their proximity to China.
The three producers collectively control about 60 percent of global exports and have been pumping billions of dollars into expanding output, squeezing higher-cost producers in an already over-supplied market. Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, amid a supply glut, mirroring a 47 percent collapse in iron ore.
Iron ore with 62 percent content at the Chinese port of Qingdao dropped 0.3 percent to $71.18 a dry ton on Jan. 9, according to Metal Bulletin.
Due to a slide in fuel prices Vale is now shipping iron ore to China for about $6 a ton cheaper than Australian exports, Bernstein’s Gait said. That includes the cost of mining.
Competitive Advantage“Over the last five years it has cost an average of $23 a ton to ship iron ore from Brazil to China whilst it has cost only $9 a ton to ship it from Australia,” he said. “In a world where freight is free and distance to market not an issue, then Brazil is actually at a significant competitive advantage over Australia.”
A spokesman for BHP couldn’t immediately comment. A spokesman for Rio Tinto couldn’t immediately be reached. Vale’s press office didn’t immediately reply to an e-mail seeking comment on the research note.
BHP, the world’s third-biggest iron-ore exporter, last year said it wants to cut production costs to less than $20 a ton, from about $25 a ton at present, excluding freight and royalty costs. That compares with London-based Rio Tinto’s average cost of $20.40 a ton in the first half of last year.
Last year’s iron-ore price slump prompted Goldman Sachs Group Inc. to declare the “end of the Iron Age” after a China-led demand spike over the past decade brought record profits for producers. China is the biggest consumer of the raw material.
