TORONTO (miningweekly.com) – Iron-ore prices will remain in the doldrums for 2015 as senior producers continue to bring new, low-cost output into the market, CRU group director of multicommodity, knowledge and information Paul Robinson told an audience at the 2015 Prospectors and Developers Association of Canada yearly convention.

Stemming from this, smaller producers with tight margins and lower grades would come under much greater pressure this year, their situation compounded by being locked out of the Chinese market by the Big Four iron-ore miners – BHP Billiton, FMG, Rio Tinto and Vale.

Nonetheless, all producers have felt the pain of the price falling across the second half of 2014 into 2015. CRU forecast an annual average price for 2015 of $65/t cost and freight to China.

With their lower operating costs and greater economies of scale, the seniors had been able to weather the storm. Robinson noted that Rio Tinto CEO Sam Walsh went on record at a recent Chatham House event, saying that his company was producing iron-ore at $17/t.

“So Rio Tinto is achieving a big margin even with iron-ore at $65/t,” Robinson added.

Compared with a peak of $278-billion in 2013, the value of production in 2015 was expected to be a little over $130-billion in 2015. “By our calculations that makes it a smaller market by production value than metallurgical coal or metallurgical coke, which I was astounded at,” he added.

The causes behind the price slide are many and varied, although they primarily revolve around the slowdown in Chinese demand growth and on more supply coming from new operations.

The Big Four added some 130-million tonnes of new production across 2014 and – along with Hancock’s Roy Hill operation in Pilbara, Australia – are expected to add another 95-million tonnes in 2015.

The new material would enter a global market where around one-third of the output was lossmaking. Nonetheless, numerous high-cost producers clung on despite the odds, finding savings that many would have thought impossible two to three years ago.

A further lifeline for them had come from reduced energy costs achieved on lower oil prices. “We shouldn’t underestimate the ability of established juniors who have no alternative business model to find even more cost savings,” Robinson advised. 

Cuts in production recorded in 2014 had not been enough to add price support, while any potential supply gap had been easily filled by new material.

CRU estimated that domestic closures in China in 2014 amounted to the equivalent of 35-million tonnes a year being taken out of the market. However, further closures in China may be stymied by the social pressure to maintain jobs among State-owned operations.

Ex-China, CRU had identified the withdrawal of 45-million tonnes, primarily from junior mine closures or operations going on care and maintenance. “So the strategy of the Big Four putting this production in place and squeezing out the guys at the other end is working to a certain extent. However, there are limits,” stated Robinson.