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PrintGlobal investment group Morningstar said that smaller iron ore miners in Western Australia are under pressure in dealing with unprecedented high construction costs.
Senior resource analyst Mark Taylor predicts the price of iron ore could soon drop from about AUD 120 a tonne to AUD 80 a tonne.
Recent estimates put the average cost of production at less than AUD 50 a tonne which Mr Taylor says will keep larger companies in a good position. However, he said that a drop in price will put pressure on smaller miners who may find it difficult to secure the funds required to come onstream.
He said that "But you've also got to consider that the costs of construction are at unprecedented high levels and whether your return justifies that kind of expenditure at the moment. It is getting a bit line and ball."
However, Mr Taylor said that larger companies like BHP Billiton and Rio Tinto are still in a good position. He said that "Iron ore will probably come off to [the] vicinity of AUD 80 a tonne from AUD 120 now.”
Mr Taylor said that "That sounds like a large fall but you've also got to consider that not long ago iron ore was $25 a tonne, so it's still high in an historical context. Iron ore prices aren't going to fall in isolation, it's going to be across the commodity spectrum."(Source: ABC Net)
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