Why iron ore prices are in the pits

High-cost producers, particularly in China, are not helping the perilous state of the iron ore market by refusing to restrict supply, according to ANZ’s head of commodity research.

"One of the dynamics creating weak prices right now is that high-cost producers in the market are not responding in the way of restricted supply."
Mark Pervan, Head of Commodity Research, ANZ

Speaking to BlueNotes on video, ANZ’s head of commodity research, Mark Pervan, said the vertical integration model of some Chinese miners, which also own steel plants, is forcing the issue. 

“One of the dynamics creating weak prices right now is that high-cost producers in the market are not responding in the way of restricted supply,” he said. “And I’m talking about China supply here.” 

“And this is… why we’ve seen an underperformance in iron ore. The high-cost producers are staying open.” 

Globally, iron ore prices are currently at six-year lows. The price of the base metal, used for a range of functions but primarily in steelmaking, has fallen 40 per cent so far in 2014. Despite this softness, producers continue to maintain output at high levels. 

So, what are the other factors at play here? How will it affect the market in the long term? Watch the videos to find out more.