Plunging prices for Australia’s largest export, iron ore, has forced Atlas Iron to announce on Friday, it was suspending operations and shutting down production over the next couple of weeks. The announcement will see the loss of 500 jobs at its Pilbara mines and another 75 redundancies at its head office in Perth. The mines will be put on care and maintenance with the hope prices will one day improve.
With four weeks until the Federal Budget, Treasurer Joe Hockey is now modelling the budget around an iron ore price of just $35 USD a tonne, telling Fairfax, “There seems to be no floor.”
According to UBS analysts, the $35 target price is only $1 over the break-even price for Australia’s largest miners, BHP Billiton and Rio Tinto.
The shutdown of Atlas comes at a bad time for the Pilbara region and Port Hedland. According to SQM Research, asking prices for houses in the town has collapsed 22.6 per cent in the last year, down 33.4 percent over the past three years.
Average rents for houses have fallen 34.2 per cent over the year and 51.5 per cent over the past three years.
In February 2015, the ABC reported on a 1965 fibro and iron three bedroom home brought four years ago for $1.3 million, being passed in at $360,000. The hopeful owners’ currently have it listed on RealEstate.com for $590,000. The closure of Atlas will be another blow for the owner.
According to an article published yesterday (‘We travelled across China and returned terrified for the economy’), a Bloomberg metals analyst, Kenneth Hoffman, believes China’s metal markets are “a lot worse than you think.” He commented, “China’s metals demand is plummeting.”
The World Bank has indicated a slowdown of China will have a “significant negative impact” on Australia (‘China slowdown ‘will hit Australia’)
Data released today by the China Customs Bureau show exports slumped sharply in March, down 14.6 per cent for the year. Exports to Europe and Japan was down just short of 20 per cent. Imports were also extremely weak, down 12.3 per cent.
The plunge in iron ore comes about from mass overbuilding in China, something we detailed back in June 2013, (“GFC2 – Will it be made in China?‘)
» Atlas Iron’s decision to suspend production highlights pressure in sector, analysts say – The ABC, 11th April 2015.
» Port Hedland house passed in at auction in million-dollar dive, sign mining boom over – The ABC, 9th Feb 2015.
» We travelled across China and returned terrified for the economy – Yahoo7 Finance / Bloomber, 10th April 2015.
» China slowdown ‘will hit Australia’ – Yahoo7 Finance / AAP, 13th April 2015.
» Budget 2015: Treasurer Joe Hockey manages expectations with forecasts of $US35/t iron ore – The ABC, 13th April 2015.
» Falling iron ore price means BHP Billiton, Rio Tinto might clear only $US1 a tonne – The Financial Review, 13th April 2014.
» Exports slump suggests China’s economy further losing steam, say analysts – South China Morning Port, 13th April 2015.