Iron Ore Prices

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Atlas points to price floor as ore tumbles
SARAH-JANE TASKER AND PAUL GARVEY THE AUSTRALIAN MAY 30, 2014 12:00AM

IRON ore has hit a 20-month low on the back of weak interest from steel mills, but producer Atlas Iron remains confident in the long-term price outlook.

The price, which had recovered slightly after a slump early last week, yesterday fell to a new low of $US96.80 a tonne, sending the share price of ­
iron ore producers lower.

BHP Billiton ended the day 1.3 per cent lower at $37.49, Rio Tinto fell 2.2 per cent to $60.07 and Fortescue Metals Group lost 2.9 per cent to $4.54. Atlas Iron took a 4.6 per cent hit to 72c.

RBC Capital Markets said iron ore prices were being held down by market uncertainty and negative sentiment following the recent price drop.

“Given weak demand, increasing supply, mill destocking and tight credit in China we continue to expect subdued iron ore prices in Q2 2014,” the RBC commodities team said.

Atlas Iron managing director Ken Brinsden said despite the iron ore price cooling on the back of increased supply in the market he was optimistic because the demand side did not look as if it had materially changed.

“The supply side has absolutely increased and it will take some time for those tonnes to find their natural home,” he said.

“But I firmly believe they will displace some other high-cost production in which case the buying tension re-emerges.”

Mr Brinsden said while anyone expecting the price to go back to $US150 a tonne would be disappointed, he believed there was a good chance the price could stay in the range of $US100- $US125 for years to come. “Our challenge as a business is to take advantage of our good assets in the ground, our good people, make sure we look after our cost base and that we’ve got a healthy balance sheet so we can weather the storm and come out the other side,” he said.

Despite the iron ore price fall, ANZ analyst Mark Pervan said there were signals emerging of better seaborne prices, with steel mills running low inventories and cheaper inputs helping profit lines. “Weaker iron ore prices has seen stronger interest in seaborne material from Indian steel producers,” he said.

“JSW Steel is set to import additional higher-grade ore to offset shortfalls in domestic supply.”

He also said that discussions for coking coal contracts for the third quarter had begun, with producers expected to set prices fractionally higher than agreements from the second quarter.

“BHP is expected to step away from negotiating quarterly contracts, however, preferring to strike monthly and index-based pricing,” he said.

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Pollution moves pushing ore prices lower, China conference told

BARRY FITZGERALD THE AUSTRALIAN MAY 30, 2014 2:09PM

CHINA’S crackdown on air pollution has emerged as one of the key factors in the slide in iron ore prices to 20-month lows, the Australia in China’s Century conference was told today.

Andrew Michelmore, the chief executive of the Chinese state-controlled but Australian-managed miner MMG, told the conference that Beijing was acutely aware of the air pollution problems and that as locals noted, it was a problem shared by peasants and government officials.

“So they are doing something about it. And that is what is now being seen in steel. They are saying we have to shutdown this old, inefficient and high energy consuming steel businesses.”

Mr Michelmore said that because of steel over capacity, the view was that China could afford to shutdown the “crappy” side of the industry and still have plenty of capacity.

CHINA CONFERENCE IN-DEPTH

He said that was causing uncertainty for market players in Western countries who have taken the reduction in demand coming from the environmentally driven cutbacks as a sign of reduced iron ore demand, taking prices down from last year’s average of $US135 a tonne to $US95 a tonne.

As a result, Michelmore forecast “quite large volatility” in prices, not only in iron ore, but other commodity prices as well. “I am quite cynical about the size of these swings where there has been very little change in the fundamentals.”

“But that is the market. That is what we are going to get.”

Despite the current concern that rising Australian production will drive the iron ore market in to surplus supply, and take prices sharply lower still, Mr Michelmore said that in the long term, he expected higher iron ore prices.

“But you have got to go through these periods.”

Mr Michelmore said that commodity price weakness could also be linked to the relatively short term duration of the global financial crisis. “The GFC did not last long enough for minerals.”

He said that the industry did not clean out the inefficient operations that should have been shut down, with the quick return of elevated commodity prices giving projects a second lease of life. That they were not shut during the GFC had delayed the pain to the current situation where large sectors of the industry are struggling.

Mr Michelmore said that Beijing’s attack on asset bubbles in housing and metal trading was for “real” but did not detract from China’s growth story.

“They are still 600 million people who live on $US600 a year and the government has to get them to $2000. Inflation kills those people, and the government is acutely aware of it.”

“So I think you will see this turmoil over another year and a half to two years. But it is actually setting a far better base for continued seven per cent growth, in second gear, for a much longer time.”

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Miners in for a hit as iron ore price tumbles
MATT CHAMBERS THE AUSTRALIAN JUNE 02, 2014 12:00AM

A FURTHER slide in the price of the nation’s biggest export, iron ore, will dampen the effects of a strong Friday night performance from US stockmarkets when the local bourse opens this morning.

As the New York stockmarket hit a fresh record, iron ore prices fell $US3.90 to $US91.80 a tonne, making May the sixth straight losing month for the steelmaking commodity and sending the more mining-focused London stockmarket lower.

The London-listed shares of BHP Billiton and Rio Tinto suffered their biggest one-day falls in nearly a year. BHP shares tumbled 3.4 per cent and Rio was down 4 per cent.

Iron ore will soon slump to a five-year low if the price rout continues.

The continued slide means the federal and West Australian governments are suffering declining tax receipts, and investors will be hoping that producers’ forecasts of a quick recovery are correct.

The iron ore price fell 13 per cent in May and looks set to test its 2012 lows of $US86.70 a tonne. If it falls through this level, prices will be at their lowest since ­November 2009, when the price was starting to shake off the ­effects of the global financial ­crisis. The share prices of miners on the Australian market may not fall as dramatically, although Chinese iron ore futures slipped before the ASX closed last week and may weigh on mining stocks.

For the rest of the Australian market, the offshore signs look positive. “Sharemarket fundamentals remain favourable, with reasonable valuations, global earnings improving on the back of rising economic growth, and monetary conditions set to remain easy for some time,” AMP chief economist Shane Oliver said. “Any dip should be seen as a buying opportunity.”

The S&P 500 index rose 3.54 points to a record 1923.57 on Wall Street on Friday night, capping a 2.1 per cent gain for May.

Deutsche Bank analysts who visited metals and mining-related companies in China last week said the mood was relatively bearish, with concerns over a slowing property market dominating discussions. But they came away with the feeling things could be about to change.

“Our view is that the current property market weakness is cyclic and that we are approaching a bottom,” the analysts said in a note to clients. “This does not preclude further price declines in iron ore, but we would caution against being too bearish.”

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Heavy lifting’s not over yet for iron ore miner
CRITERION THE AUSTRALIAN JUNE 04, 2014 12:00AM

Atlas Iron (AGO) 68.5c

THE bad news is that the Chinese iron ore market is oversupplied by 400 million tonnes — more than the annual output of Rio Tinto and Fortescue Metals combined.

The good news?

These high-cost tonnages won’t be in the market for too much longer if the iron ore price continues to sag.

With Chinese demand remaining robust, this creates a theoretical undersupply of — you guessed it — 400 million tonnes.

Atlas chief Ken Brinsden yesterday aired the number at a Sydney briefing, to support the popular argument that high-cost producers will withdraw from the market. The main culprits are ­private Chinese producers churning out ore at a cash cost as high as $US145 a tonne, which does not make sense when Chinese mills can buy the seaborne stuff for $US92 a tonne ($99 a tonne in Australian dollars).

In the meantime, users are migrating to the higher quality (62 per cent ferrous content) output, putting further pressure on suppliers of the 58 per cent grade ore such as Atlas.

Brinsden’s prezzo wasn’t intended to spook what’s already eggshell-fragile sentiment surrounding the steel ingredient.

He notes that reduced pricing has also opened up new markets, with Atlas selling for the first time into China and with “opportunities being progressed into other Asian and European destinations’’.

Brinsden last week said iron ore demand had not materially changed and he was confident the price could stay at $US100-$US125 a tonne in the longer term.

While Atlas is suffering from the price hit at least it is shipping the stuff at record levels — 1.25 million tonnes in May with guidance of 10.2-10.7 million tonnes for the full year.

Atlas cites cash-cost guidance of $49-$52 a tonne. But UBS recently had Atlas as a less comfortable all-in cost of $US82 a tonne ($88 a tonne).

The iron ore price has fallen 30 per cent since the start of the year and Atlas shares have retreated 40 per cent in sympathy.

While we acknowledge the miner’s long-term prospects — especially with the Mount Webber mine in development — we will avoid this one pending clarity on the Chinese supply and demand dynamics.

There are 400 million reasons we could be right — and 400 million reasons why we could be to wrong.

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Rio boss Sam Walsh upbeat on price rebound
MATT CHAMBERS THE AUSTRALIAN JUNE 05, 2014 12:00AM

Iron ore prices Source: TheAustralian
RIO Tinto chief Sam Walsh says iron ore prices are likely to stabilise at above $US100 a tonne and that analysts forecasting sustained $US80 prices are being too pessimistic.

Speaking in London, Mr Walsh said a one-third slump in prices this year was unlikely to be sustained because lower prices would see unprofitable mines shut down.

“When we saw prices around $US80 a year and a half ago, we saw a number of people come out of the market; domestic supply in China, Africa and some in Australia,” the mining boss said from London in an interview on Tuesday night with Bloomberg TV. “I think $US80 is too low. I suspect a level north of $US100 is probably more realistic.”

The comments are in line with those of Fortescue Metals chairman Andrew Forrest, Seven Group Holdings executive director Ryan Stokes and MMG chief Andrew Michelmore at the Australia in China’s Century conference in Melbourne last week, when they said slumping iron ore prices were unlikely to be sustained.

But they are at odds with many analysts and fund managers, who believe steadily increasing supply from Rio, Fortescue and BHP Billiton will not be soaked up by the market and will weigh on ­prices. So far this year, iron ore prices have fallen 31 per cent to $US92.50 a tonne, nearing the $US86.70 low they hit in September 2012 .

If iron ore prices continue to fall, Rio’s mines, which have cash costs of about $US20 a tonne, meant the company would be fine, Mr Walsh said.

“I don’t think we’re going to go down to $US80 or else a lot of my friendly competitors are going to disappear,” he said.

Mr Walsh was speaking after addressing an event in London. Chinese iron ore futures were trading higher yesterday, indicating overnight iron ore prices were set to rise.

ANZ, one of the more bullish iron ore forecasters, yesterday cut its 2015 average forecast from $US118 a tonne to $US106.

“Sentiment is particularly negative with weak cyclic factors (rising supply and falling demand) coinciding with weak structural developments (crackdown on inefficient high-cost iron ore and steel capacity) to fuel heavy shorting activity,” ANZ commodity research head Mark Pervan said.

“The market has overreacted, as it often has in the past, but picking the bottom is like catching a falling knife as speculators take over the market.”

Mr Walsh said recently announced job cuts at the Oyu Tolgoi open pit copper and gold mine in Mongolia were the result of a dip in the copper price. “We have to take action to trim our costs so we can continue to be competitive,” Mr Walsh said.

Prices rapidly fell 10 per cent in March to below $US2.95 a pound but have since recovered to about $US3.15. The cost-cutting partly reflects the thin returns Rio will make on the mine if it fails to reach an agreement with the Mongolian government to build a $US5.2 billion ($5.4bn) underground expansion.

In a recent report, Macquarie analyst Adrian Wood said the $US6bn open pit mine would never recover the investment, whereas adding the underground expansion would return more than $US2bn of cumulative net cashflow to the company by 2025.

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Ore price pessimism overdone as miners dig in for long game

DAVID WALKER THE AUSTRALIAN JUNE 10, 2014 12:00AM


DON’T get too gloomy about the falling iron ore price.

While economists and politicians fret, the sliding spot price, now at 20-month lows after falling 30 per cent this year, has had no discernible effect on the confidence and intentions of the iron ore majors in most resource stock portfolios.

BHP Billiton, Rio Tinto and Fortescue Metals Group aim for production records of, respectively, 217, 295 and 127 million tonnes this financial year and Fortescue targets capacity of 155mt next year. Brazil’s Vale is forecasting 360mt.

The majors are playing a long game of increasing their control of the seaborne iron ore trade and transitioning Chinese steel producers from low-grade ore to the higher-quality blends exported from the Pilbara and Vale’s Carajas mine. The majors might not like the near-term pressure on their margins from the weak price, but their huge capacity ­upgrades make them responsible for it and are ­deliberately targeted at the small high-cost producers that account for a quarter of ­global production.

We would not be surprised to see further capital commitments to iron ore by BHP and Rio Tinto when they announce their full-year results. Tellingly, Rio Tinto chief executive Sam Walsh recently boasted his firm was a “price-maker”.

The chart (right) shows the majors’ advantageous position on the global cost curve.

The multi-year surge in iron ore prices, which peaked in 2011, attracted a variety of chancers hoping to cash in on a once-in-a-century opportunity.

China itself launched several high-cost, uncompetitive domestic producers to fill a seaborne supply gap. Poor grades and lack of scale make many of these junior miners uneconomic at prices below $US100 a tonne.

In contrast, the majors can ­afford to run their mines at nameplate capacity even at today’s ­subdued prices while they wait for marginal producers to go out of business.

Gloom about price has a ­secondary benefit for the majors when sell-side analysts and bankers become pessimistic. Lower forward prices in company models make it harder for existing and new juniors to raise equity and debt capital. The majors can also threaten to hike supply, but then roll out only enough capacity to suit themselves, with damage to the juniors done.

Value investors hunt for opportunities created but hidden by popular pessimism.

The iron ore majors’ strategic endgame to dominate the seaborne market — and increase their volumes and pricing power — means their shares should be on these investors’ watchlists.

There is plenty of growth left in Chinese iron ore consumption as the nation urbanises, and it is not hard to see the majors scaling back their capacity upgrades to match Chinese demand growth once the iron ore bit players have been sent packing.

In the near term, there is potential downside to our respective 2015 valuations for BHP, Rio and Fortescue of $US42.75, $US76 and $US8.40 if the iron ore price falls further, but these stocks are already trading at discounts to value of 15 per cent, 22 per cent and 46 per cent, respectively.

The iron ore majors are only becoming more interesting.

David Walker is senior equities analyst at StocksInValue, a joint venture between Clime Asset Management and Eureka Report. He owns shares in BHP and Rio.

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Iron ore falls to $US89 per tonne, miners’ stocks under pressure
BUSINESS SPECTATOR JUNE 17, 2014 7:28AM
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Mitchell Neems

Business Spectator Reporter
Melbourne

Business Spectator's associate editor Robert Gottliebsen predicts challenging times ahead for minerals investors as Australia continues to get squeezed by international competition for LNG and the waning value of iron ore.


THE iron ore price has fallen below $US90 a tonne for the first time in almost two years as slowing demand from China continues to weigh on the commodity.

Benchmark iron ore for immediate delivery to the port of Tianjin in China is trading at $US89.00 a tonne, a decline from $US90.90 in the previous session.

The commodity is now in line with its lowest point since September 7, 2012, when it also traded at $US89 a tonne, but is poised to drop to near-four year lows if it continues to weaken.

Price drop a boon for big producers

The September 2012 trough saw the price fall as low as $US86.70 a tonne on September 5, however if this easing cycle continues, the commodity price may well fall to its lowest level since October 19, 2010, when it traded at $US85.90 a tonne.

FMG invests in larger vessels for ore

The latest declines will likely put pressure on exposed miners in early trading on the ASX today, particularly the likes of Fortescue Metals, BC Iron and Atlas Iron. The latter is particularly exposed as it is the company closest to reaching its break-even price for iron ore -- $US82 a tonne.

The iron ore price has weakened over 30 per cent this year, with exposed miners set to bear some of that pain in their full-year results in August.

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Rio Tinto follows Fortescue with big cuts to iron ore price
PUBLISHED: 0 HOUR 1 MINUTES AGO | UPDATE: 0 HOUR 1 MINUTES AGO

Rio Tinto follows Fortescue with big cuts to iron ore price
The iron ore price has fallen 34 per cent this year to be trading at $US89.30 a tonne. Photo: Bloomberg
ANGUS GRIGG AND LISA MURRAY
Rio Tinto has been forced to heavily discount its low-grade iron ore just days after Fortescue Metals Group cut prices, amid surging supply and weak demand from Chinese steel mills.

Rio told its customers on Tuesday night that it would increase discounts from 6 per cent to 13 per cent from July 1.

This applies to its 57 per cent FE Robe River fines and will see Rio receive about $US73 a tonne for its low-grade product.

The iron ore price has fallen 34 per cent this year to be trading at $US89.30 a tonne. This is the first time it has traded below $US90 since 2012.

The price reductions offer by Rio for its low-grade ore are broadly in line with the discounts being given by Fortescue.

Fortescue told its Chinese customers last week that it would be offering a 14 per cent discount from July 1. This is up from 12 per cent in June and an average discount of about 2 per cent last year.

Rio and Fortescue both ­publicised the new discounts via ­Chinese industry site Steel Home, which confirmed them to The Australian Financial Review.

Lower-grade iron ore is offered at a discount to the benchmark price, as it is more expensive for steelmakers to process and also has higher ­emission levels.

“Demand for low quality product is plummeting,” said the managing partner of J Capital Research, Tim Murray.

Mr Murray attributes the recent price falls to a combination of ­falling demand and rising supply. He ­estimates Chinese steel ­production has fallen 2 per cent so far this year, not risen 5 per cent as official data claims.

CLEAR OVERSUPPLY
Over the same time the amount of imported iron ore has risen 20 per cent, he said.

“That equation makes for clear oversupply,” Mr Murray said.

Also weighing on the iron ore price is an escalating commodity-financing scandal at Qingdao Port in ­north-eastern China.

Trading company Citic Resources has emerged as the latest victim, announcing on Wednesday it was unable to find more than 120,000 tonnes of alumina it had stored at the port.

Chinese authorities earlier this month launched an investigation into the practice of using the same cargo of metal to back multiple loans.

The port investigation is mainly focused on the use of copper and ­alumina but it is also affecting the iron ore market because banks are becoming more risk averse when it comes to financing any commodity-related deals.

Xu Xiangchun, chief information officer at consultant MySteel, said banks were increasingly reluctant to lend to iron ore traders and, at the very least, had increased their deposit requirement.

The 21st Century Business Herald reported on Tuesday that Dezheng Resources, the company at the centre of the probe, managed to borrow at least 16 billion yuan ($2.7 billion) from 18 banks.

The newspaper said Dezheng was being sued by more than 10 banks and had obtained another 3 billion yuan via China’s poorly regulated shadow finance sector. Bank of China is among the hardest hit by the scandal, the paper said.

Citic Resources, which is the commodities trading arm, of state-owned conglomerate Citic Group, said it was conducting its own investigation into its missing alumina.

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Ramped-up steel supply only delaying inevitable
THE AUSTRALIAN JUNE 23, 2014 12:00AM

David Uren

Economics Editor
Canberra

Iron ore stockpiles
CHINA’S steel production hit a new monthly record of 70.4 million tonnes last month, with the failure of central government efforts to shut down high-cost and polluting steel mills giving some support to the troubled iron ore market.

However, market analysts are taking little comfort from the continued strength of Chinese steel production, which merely is postponing an inevitable and painful contraction.

Trying to predict where iron ore prices will settle is “like trying to catch a falling knife”, says ANZ commodities analyst Mark Pervan, so many are the ­forces bearing down on it.

The build-up in iron ore supply capacity is gathering pace at exact­ly the time demand is easing. The pressures keeping high-cost production going as prices fall mean there is a risk that prices will overshoot at the bottom of the market, just as they did in 2011 at the top.

The iron ore market has a long history of prices going to extremes as a result of the difficulty in matching supply and demand when decisions to expand involve huge sunk costs and must be made years in advance.

While China’s steel production is still rising — last month’s prod­uction was 9 per cent ahead of last year’s monthly average — the downturn in its property market is reducing real demand for steel, with increased output from the mills simply adding to inventory.

Pervan estimates that property construction accounts for 40 per cent of steel demand in China dir­ectly, with a further 10 per cent going to infrastructure tied to the property industry.

Concerned that property markets were overheating, the Chin­ese government imposed restrictions last year on property investment. Fearing that even tighter restrictions might be coming, there was briefly a flood of new investor activity. However, that now is abating.

China’s house prices fell last month and new building starts are also down. Property developers report that sales were down 9 per cent in the first four months of this year, while new housing starts, measured in floor area, are down about 25 per cent.

The government is increasing investment in social housing, and there is always the potential that it may ease the restrictions imposed last year.

An analysis by Deutsche Bank shows it is the third downturn in the Chinese property market since 2007 and cautions against the more alarmist conclusions that the present weakness will threaten financial stability.

Deutsche economists argue that the inventory of unsold housing — equivalent to about 13 months’ worth of sales — will be taken up within a year or two.

From the perspective of the steel and iron ore market, however, the prospect of falling demand from the property sector is making imbalances worse, as there was already substantial ­excess capacity in China’s steel ­industry.

Another factor bearing down on the iron ore market is the rolling scandal of Chinese commodity financing, with multiple banks finding they have used the same commodity stock as security for loans. The result is that banks are withdrawing support for iron ore stocks held at ports, which are close to record levels of about 110 million tonnes.

One of the verities of the iron ore industry that is being tested is that high-cost Chinese producers would be forced out of production first, putting an effective floor in the iron ore market of about $100 a tonne. However, much of the Chinese iron ore production is vertically integrated with smaller provincial steel mills owned by local governments. They are loathe to shut down major employers, despite orders from the Chinese central government to close small inefficient and polluting steel mills.

Pervan says the perverse response to weak prices among many Chinese miners and mills has been to maximise production to reduce marginal unit operating costs. China’s iron ore production jumped about 10 per cent last month and is now 13 per cent ahead of the same time last year.

The same prod­uction “stickiness” can be seen in Australia, with coalmines that keep producing at a loss because they are locked into take-or-pay contracts with rail freight providers. Citic Pacific’s massive Sino Iron project must be losing fantastic amounts once capital costs are included but, since they are sunk costs, the incentive is to keep producing.

Demand is softening just as the growth in supply is peaking. Pervan says that, historically, iron ore production has risen by about 30 million tonnes a year, but last year this was 90 million tonnes. This year, it will be an additional 80 million tonnes and, next year, another 65 million.

The state of the iron ore market is starting to resemble the early 1980s. From the 50s through to the mid-70s, world steel production rose rapidly in response to industrial growth in the US, Europe and Japan. There was concern that iron ore production would fail to keep pace, leading Japanese mills to foster expansions in mine capacity in the Pilbara and opening the Brazilian iron ore industry in what was at the time the very remote Amazon.

The miners kept commissioning their new capacity, believing the growth of the 60s and 70s would soon resume. In the event, there was no growth in world steel production from 1980 to 1995.

An EU study of this period, highlighting the risks of overshooting in the iron ore market, shows that steel production plateaued in the early 80s while seaborne trade in iron ore fell. From 1982 through to 1988, iron ore ­prices in the Asian market fell from $34.25 a tonne to $23.30.

“Those with an eye to the industry’s history will naturally be pondering whether the boom in global steel demand which China has driven will not be followed by a bust of the sort that occurred in the early 1980s,” the report says.

The iron ore miners say their expansion projects assume growth in China’s demand would slow, although they believe urbanisation will support continued growth, with Rio Tinto saying that China’s underlying steel demand would reach one billion tonnes by 2030 (from a demand at the moment of about 550 million tonnes).

But just as the miners never envis­aged the sort of meteoric growth of the Chinese steel industry through the 2000s, they may yet be shown to have over­estimated the momentum in its steel demand.

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Fortescue exec tips rebound for iron ore price
THE AUSTRALIAN JUNE 30, 2014 12:00AM

Andrew Burrell

Senior Business Reporter
Perth

FORTESCUE Metals Group’s chief financial officer, Stephen Pearce, has called the bottom of the bear market for iron ore, saying he believes the price of the valuable export commodity is set to rebound to about $US110 a tonne and remain there for some time.

But Mr Pearce, who is viewed as a possible future chief executive of the company, also warned that the days of boomtime prices of $US150 and above were probably over, signalling an end to the revenue bonanza for companies such as Fortescue, Rio Tinto and BHP Billiton.

He said last week’s mini-rally in the iron ore price, which pushed above $US95 a tonne after falling to an almost two-year low earlier this month, suggested that the trough in the current cycle had probably been reached.

Mr Pearce made the assessment based on the strength of key Chinese economic data, the decline in iron ore stockpiles at China’s ports and the fact that the market was now adjusting to the increased supply levels from the major Pilbara producers in recent months.

“What we’ve seen over the last six months, since September last year, is a lot of new supply come in from Rio, BHP and ourselves in particular,” Mr Pearce told The Australian.

“When you bring on infrastructure, it’s not a precise science that you can just dial up.

“Infrastructure tends to come on in lumps and therefore you get supply flushed into the market in step changes and I think we’ve seen that in the last six months.

“I think it will take another month or two for the market to ­digest that and for the market to respond.

“But I think we’re perhaps already seeing early signs of that in the marketplace as we’ve just gradually crept off that $US90 level and potentially seeing some early drawdowns of stock at the ports, maybe subtly indicating we’re just stepping off that ­bottom.”

The iron ore price has plunged by about 30 per cent this calendar year, falling as low as $US89 a tonne on June 16 amid continuing doubts about Chinese economic growth and the Asian giant’s demand for commodities.

But Mr Pearce said much of the doom and gloom had been overdone, and he preferred to focus on longer-term Chinese economic data, which suggested ongoing strength.

“I think people sometimes look at short-term statistics from China and I think that’s a little bit dangerous,” he said.

“In my mind, (it’s) the six-month and 12-month trends that are really more important.

“When you step back and look at those, steel usage is up 6 per cent year-on-year, and that’s pretty healthy. It’s probably higher than what people were anticipating.

“In my view, we may well see the same sort of trend we saw last year, when there was a higher level of fixed-asset investment and steel utilisation in China in the second half of the calendar year than there was in the first.

“I’m not expecting the (iron ore) price will rebound to the $US140 level anytime soon. But I think it will re-emerge and settle around that $US110 mark … for a period of time as new supply gets digested and as the Chinese domestic market adjusts to where the new pricing points are.”

Mr Pearce said Fortescue remained highly profitable even with iron ore trading around $US90 a tonne, meaning it was a “very, very different” company than during the bear market of 2012, when prices fell as low as $US86.70.

Fortescue’s near-death experience in September 2012 prompted it to lay off 1000 employees and refinance billions of dollars in debt while continuing to expand production from its Pilbara operations.

It now has a break-even price of about $US70 a tonne, but this is based on the headline iron ore price (for 62 per cent Fe) rather than the reduced levels at which Fortescue sells most of its product.

The current break-even price is well down on the $US90 levels that threatened Fortescue’s survival almost two years ago.

“I sleep very well at night,” Mr Pearce said. “Our cost position is 34 per cent down on where it was in 2012.

“We are now producing tonnes on to the ship at $US33-$US34 a tonne — that’s very different from where we were at $US50 a tonne two years ago.

“We generate very healthy margins at these ... pricings.”