Iron Ore Prices

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Time to prepare for China's big steel scrap

1147 words
13 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Rarely has scrap metal loomed so important to the future health of the Australian economy.

In an increasingly fractured discussion over the state of global iron ore markets there is general agreement that the most critical unknown is exactly when China's boom will start eating itself.

"If you think iron ore is bad now, wait until the market goes to negative growth – which it will as the scrap kicks in," a senior miner warned me last week. As things stand, there appears to be subtle but distinct divergence of opinion between Australia's two masters of the iron ore universe over whether China's scrap cycle has started.

Australia's biggest iron ore miner, Rio Tinto, remains cautiously comfortable that the immaturity of the Chinese scrap metal industry will leave it unable to exert dampening structural influence over the iron ore market until well into the next decade.

Rio's view, informed by a broadly sourced bottom-up analysis that starts on Chinese factory floors and ends with complex scenario modelling, is that China currently does not have the volume of mini-mills needed to recycle metal in the volumes necessary to put a pre-emptive cap on growth in raw steel production.

This narrative leaves Rio still wedded to a long-standing conviction that iron ore demand will peak between 2025 and 2030. And that informs a view that the current price shakes down short-term supply-side dynamics rather than a shift in the longer outlook for demand.

BHP Billiton, on the other hand, appears to have down-shifted its outlook to a more defensive setting.A big deal?

For some time the Big Australian has warned of the recovery of routine price cycles in the bulk commodity markets. But it has also pondered whether China's iron ore demand would peak earlier and at lower volumes than imagined just two years ago. How could this be such a big deal? China uses recycled scrap steel at a quarter the rate of the rest of the world and at 14 per cent the rate of the US. Yet over the past decade, China has added steel to its economy at three times the rate the US did during the 20th century.

As Christian Lelong from Goldman Sachs reported this week: "On a per capita basis, the average household in China is accumulating steel at a rate equivalent to the purchase of a new car every eight months (without disposing of its older cars). In other words, the volume of steel stock in China is racing towards the US level of 13 tonnes per person."

According to Lelong, this means "the day when steel production in China will peak gets even closer".

The Lelong assessment is echoed in a Macquarie note that forecast iron ore prices would orbit the $US90 a tonne level for the next two years and the corollary of that is that profits for Australia's big three producers would fall $US8.6 billion ($9.5 billion) shy of previous forecasts. Ahead of this analysis, a former senior BHP executive offered a more colourful and blunt assessment of where global markets are and what that means for bulk commodity miners specifically, and Australia generally.

Alberto Calderon is presently a director of Orica and has plans to be a serious private investor in resources. He is also a former chief commercial officer at BHP and most recently ran its aluminium and nickel businesses.

On Tuesday he offered a presentation that, it seems to me, most likely channelled much of the state of thinking inside BHP. And freed from the commercial shackles of recent executive life, Calderon left nothing to the imagination.

The joyride for bulk commodities is over; there is potentially lethal pain ahead for anyone but the biggest and cheapest producers (Rio and BHP) and Australia's political classes need to acknowledge and adapt to the crisis already in play.

Calderon says it is "not difficult to see why iron ore prices have collapsed, and will go even lower during the next years". The Yale-trained economist, once touted as a future president of Colombia, says the oversupply in the seaborne market will hit 100 million tonnes this year, will grow to 250 million tonnes in 2015 and to 340 million tonnes in 2017.Ballooning surplus

To put that into context: that 2017 surplus is slightly more than the 330 million tonnes that Rio hopes to be shipping into the global system by then. It is about 30 per cent of the current seaborne market.

There are two reasons why this surplus will balloon. First, even with prices travelling in the $US80 range, the big diggers sitting at the bottom of the cost curve, such as Rio, BHP and Vale, are still incented to grow. Deutsche Bank estimates Rio's move from 290Mtpa to 330Mtpa will drive cash costs down below $US20 a tonne by 2015 and that, even at $US84 a tonne, its FY15 iron ore margins would run at 50 per cent.

The other driver is that, surprise, surprise, China is not responding "rationally" to the pricing signals.

It is not closing down the 120 million tonnes tonnes of high-cost mining capacity with the alacrity that was predicted. "The conventional wisdom was that the production tonnes that would be displaced would be in China," Calderon reports. "This is probably not true."

Calderon reckons China's production will hold at 400 million tonnes during the next years. "China will repeat what it has done already with aluminium and thermal coal," he predicts. "[That is] create an oversupply of iron ore that will benefit them as a consumer country. I won't go in to details, but their strategy in aluminium has knocked $US1000 off the aluminium price and created a gain of $US250 billion for China."

If China will not budge then the rest of the market must. And if we chop Chinese production from the iron ore cost curves guess where the first big breaking point is? You guessed it. About $US80 a tonne.

The reason this matters to us all is that iron ore makes up 22 per cent of our exports by value, while the resources sector last year generated 55 per cent export earnings. Even as the sun was setting on the boom during the second quarter of 2014, Australia's current account deficit was already close to 5 per cent of GDP. "If current trends continue, the deficit may reach unsustainable levels of 7 per cent to 8 per cent," Calderon says.

If he is right, our terms of trade will wither rapidly, the Aussie will break, reversing our currency wealth effect and Australia will take a decade to regain its competitiveness, in part, because our various parliaments are incapable of manufacturing solutions.


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Vale chief Marilo Ferreira sticks to his guns on ore recovery
THE AUSTRALIAN SEPTEMBER 15, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
THE head of the world’s biggest iron ore miner, Vale in Brazil, is sticking to his script as iron ore prices plunged to five-year lows, saying they could rebound to $US100 by the end of the year.

Vale chief executive Marilo Ferreira told reporters in Beijing that prices could rise to the level, where it last traded in May, by the end of the year because of falling port inventories, Bloomberg reported.

He said some iron ore producers, which he did not mention, were cutting supply, backing comments earlier in the week from Rio Tinto chief Sam Walsh that countries like Indonesia, Iran, South Africa and Australia were cutting high-cost production.

Mr Ferreira’s optimism comes as iron ore on Friday night had only its second positive session in the past 20 trading days. But there was nothing to get excited about for miners, with the price rising only US10c to $US82 a tonne — leaving it down 39 per cent for the year.

The price has slumped as a huge increase in supply from BHP Billiton, Rio, Vale and Fortescue Metals coincides with unexpectedly weak demand from China’s construction industry.

Credit Suisse’s Hong Kong office released a note over the weekend saying feedback from Asian steelmakers did not bode well for iron ore miners.

“Our channel checks suggest little support for the iron ore price recovery,” the bank said in the note. “Most steel mills and traders are cautious on iron ore purchases on the back of a weak demand outlook for September and the potential for credit tightness at quarter end.”

The report says it is not just iron ore imports, up 13 per cent year-on-year in July to an annualised rate of 990 million tonnes a year, that are growing.

Chinese domestic production was up by the same amount, to annualised rate of 1.6 million tonnes (at an unspecified grade).

There are still analysts, such as the commodities team at ANZ Bank, who predict an iron ore price rebound as high-cost supply shuts down and winter reduces mining activity.

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Iron ore price surges as China restocks
DANIEL PALMER BUSINESS SPECTATOR SEPTEMBER 16, 2014 8:39AM

IRON ore has seen a rare positive trading day, surging almost 4 per cent amid reports of Chinese buyers replenishing stockpiles.

Benchmark iron ore for immediate delivery to the port of Tianjin in China is currently trading at $US85.20 a tonne, up sharply from last week’s five-year low of $US81.90 and 3.9 per cent above its $US82 closing mark in the previous session.

Two straight positive trading days come after a period where the price only rose once in 18 days, with the descent leaving the commodity down 40 per cent on the year at one point last week.

The declines have been driven by rising supply from the likes of BHP Billiton, Rio Tinto and Vale at the same time as questions have emerged around the strength of Chinese demand.

While Chinese data over the weekend was again soft, it appears the overnight surge was driven by Chinese buyers boosting stockpiles at low prices, a situation predicted last week by Mount Gibson Iron boss Jim Beyer.

“[The recent drop is] influenced by not just the cycle, but [also] the sentiment, the credit, [and] the new volume,” he told Business Spectator.

“It’s like a confluence of all the moons — and the cycle will start to break … They’ve got to start restocking at some point in time.”

Mr Beyer said he thought a floor would be reached around the levels seen at the tail-end of last week as the last quarter has historically seen higher prices.

“You get this consumption of stocks in China and then a rebuild of the stocks heading into winter, so traditionally the last quarter of the year is a fairly strong one,” he said.

Also potentially lifting the price was a Morgan Stanley report detailing forecasts for a lift in the price back above $US90 a tonne before the end of the year.

“We are of the firm belief that an adequate proportion of supply from the top end of the cost curve will come out, flatten the curve and ultimately secure levels of cost support,” analyst Joel Crane wrote, according to Bloomberg.

Morgan Stanley’s analysis follows last week’s prediction from Vale chief executive Murilo Ferreira that the iron ore price could return above $100 a tonne in the last quarter of 2014.

The sharp rebound comes amid a rapid fall in the value Australian dollar, further aiding local miners. The currency, which has lost about 4 per cent over the past week, yesterday fell below the US90c mark for the first time in six months.

The iron ore and forex market moves offered support for Rio Tinto’s UK-listed stock in overnight trade as it closed 1 per cent higher against a benchmark fall. The same positivity was not seen around BHP, however, with the world’s largest miner losing 0.4 per cent in UK trade.

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BREE chief Calder expects iron ore prices will recover
THE AUSTRALIAN SEPTEMBER 18, 2014 12:00AM

David Uren

Economics Editor
Canberra
DEMAND for Australia’s key resources is still strengthening and the current weakness in prices will not be sustained, according to the government’s chief minerals adviser.

The Bureau of Resources and Energy Economics expects iron ore prices will recover to a trading range of $US90-$US95 a tonne over the next five years as China’s steel production rises from about 800 million tonnes now to reach 900-950 million tonnes a year.

The bureau’s executive director, Wayne Calder, is also confident about the outlook for the coal industry, with big increases in electricity generation capacity across Asia being based on coal-fired power stations.

Mr Calder said moves by China to restrict imports of low-quality coal would have no significant impact on Australian exports.

“We export 194 million tonnes of thermal coal of which 47 million tonnes will be going into China.”

Little more than half the shipments to China could be affected and it was far from certain they would be. Miners could also take steps to raise the quality of the coal they ship.

He said Australia had the potential to diversify its markets. India was bringing on 100 gigawatts of coal-fired power, while China had 23 gigawatts under construction and another 49 giga­watts planned.

“Vietnam, Thailand and a lot of other nations in Southeast Asia are increasing their demand for coal, producing more electricity to improve the welfare of their communities, so there is an upside for coal.”

Mr Calder acknowledged coalminers were facing challenges.

Australian miners faced “take-or-pay” contracts with rail authorities trying to maximise their output in an effort to lower unit costs, but this was increasing the downward pressure on prices.

In the case of iron ore, Mr Calder emphasised the volatility of the iron ore market since benchmark pricing was abolished in 2010, with price swings of 30 per cent or more within the commodity’s natural cycle.

The market has been affected by the rapid ramp-up in supply, with 200 million tonnes of capacity coming on stream in Australia over the last 12 months. “We still see demand growing, but it has slowed somewhat.”

The addition of Gina Rinehart’s Roy Hill mine and further expansions at Rio Tinto, BHP-Billiton and Fortescue would add another 100 million tonnes to supply capacity over the next two to three years, while Brazil’s Vale would also add about 100 million tonnes. The ample supply means Chinese mills feel under less pressure to maintain stocks of iron ore.

However, he pointed out that there is scope for high-cost seaborne iron ore to withdraw from the market. “China is still importing iron ore from places like the Ukraine, Iran and Peru,” he said.

BREE also expects high-cost Chinese mines, which have remained in production despite prices dropping below their cash costs, to close over the northern winter. “We won’t expect to see them open again,” Mr Calder said.

He said he did not rule out the possibility, suggested by some analysts, that iron ore prices could drop to the low $US70s for a time.

“It could go down that far, but we couldn’t see it being sustained at that sort of price level. We still expect a downturn in price. The peaks won’t be as high and the troughs will be a bit lower.”

Australia could still expect to see good growth in its mineral export returns, with volume growth offsetting price weakness. The first of the Queensland LNG plants would start producing by the end of this year and by 2018-19 Australia’s LNG exports would rise from 24 million tonnes to 85 million tonnes, making it the largest LNG exporter globally.

BREE will release its quarterly outlook next week.

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Other sectors to feel pain from iron ore fall
THE AUSTRALIAN SEPTEMBER 19, 2014 12:00AM

Barry FitzGerald

Resources Editor
Melbourne
Iron ore price chart
Iron ore price chart Source: TheAustralian
CREDIT ratings agency Moody’s has warned that pain from the plunge in iron ore prices — and a general weakness across the spread of commodities — will be felt well beyond the mining sector.

It cited airlines and construction as two of the sectors that were being negatively impacted by iron ore’s retreat from last calendar year’s average of $US135 a tonne to $US84.20 a tonne yesterday.

The price plunge represents an annualised $US35 billion ($39bn) revenue hit, and comes on top of the 2013 price plunge in gold prices, and more recently the dive in coking and thermal coal prices.

There is now less to be shared around from spending on services of all descriptions.

Matthew Moore, a Moody’s senior analyst, said the move to counter the weak price environment had seen the major miners reduce their labour forces, which meant reductions in fly-in, fly-out passengers.

“This trend is negatively impacting the airlines and airports, such as Qantas (Ba1 negative) and Perth Airport (Baa2 stable),’’ Mr Moore said.

“A potential further reduction in capital expenditures for development would negatively impact the construction and engineering sectors, as companies, such as Leighton Holdings (Baa3 stable), face reduced project work.’’

Mr Moore was speaking on the release of Moody’s “special’’ report into the impact on Australian businesses from the decline in iron ore prices, itself a response to the surge in new supply from the Pilbara.

Apart from the knock-on effects on other business sectors, Moody’s said iron ore’s price weakness would have a direct negative impact on Australian producers over the next 6-12 months.

“To preserve margins, we expect the miners to reduce their scope of work and renegotiate contracts with the providers of mining services, which will in turn further reduce earnings and cashflows at the latter,” Mr Moore said.

He said the earnings and credit metrics for BHP Billiton (A1 stable) and Rio Tinto (A3 stable), while also experiencing pressure, were better positioned than the rest of the industry thanks to their lower cost profiles, improvements in debt levels, and the benefits coming from having diversified portfolios.

“Of the major iron ore miners, Fortescue Metals (Ba1 stable) is the most affected as, unlike its peers, it is a single-commodity producer,’’ Mr Moore said.

The outsider of the big three of the Pilbara, Atlas Iron’s (B2 stable) credit profile would be the most affected, reflecting its position as a single-commodity producer with moderate cash costs.

“Atlas will be further impacted by widening price discounts for its iron ore, which is generally of lower quality than that from the major producers,’’ Moody’s said.

But on an analyst tour of its operations this week, Atlas said the discounting was not as steep as it was in the June quarter.

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Iron ore price slumps for third day
DANIEL PALMER SEPTEMBER 19, 2014 2:15AM

The near 4 per cent bounce in the iron ore price on Monday has quickly been forgotten as the commodity fell for the third straight day overnight.

While the commodity currently remains above its five-year low, set on Thursday last week, it may not be long until it retests that level on current trends.

Benchmark iron ore for immediate delivery to the port of Tianjin in China is currently trading at $US83 a tonne, down 1.4 per cent on its $US84.20 closing mark in the previous session, but above last week’s five-year low of $US81.90.

The three days of falls follow a two-day winning streak that culminated in a 3.9 per cent jump on Monday to a level above $US85 a tonne. The brief recovery had come following a period during which the price rose just once in 18 trading days, with the latest moves leaving it with a mere three positive sessions out of the past 23.
The latest price moves come on the back of comments from Bureau of Resources and Energy Economics (BREE) executive director Wayne Calder, who warned price weakness may persist in the near-term with a retreat to $US70 a tonne possible.
“It could go down that far, but we couldn’t see it being sustained at that sort of price level," he said.

"We still expect a downturn in price. The peaks won’t be as high and the troughs will be a bit lower.”

Overall, BREE expects an average trading range of between $US90 and $US95 a tonne over the next five years.

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Iron ore price fall raises doubts about end-of-year rebound
THE AUSTRALIAN SEPTEMBER 22, 2014 12:00AM

Barry FitzGerald

Resources Editor
Melbourne
IRON ore prices have fallen to fresh five-year lows, raising fears that the much-vaunted retracement to higher price levels for Australia’s biggest export earner in the back end of the year will not occur.

Spot prices on Friday closed down $US1.30 a tonne or 1.6 per cent at $US81.70 a tonne, according to the Steel Index. The fall stopped a tentative recovery in prices from a low of $US81.90 a tonne on September 11 in its tracks.

The average price for the year to date is now $US105.20 a tonne, down from last calendar year’s average of $US135 a tonne.

Should the current year-to-date average hold — which is unlikely, given the retreat to $US81.70 — the Australian industry faces a $US21 billion revenue hit, and $US35bn if $US85 were to become the year’s average.

The fall in the exchange rate to below US90c is providing some relief. Since iron ore’s fall accelerated from $US120 a tonne in mid-April, the currency has fallen by 5.3 per cent. But that has only been enough to soften the 32 per cent fall in US-dollar iron ore prices to a 28 per cent fall in Australian dollars.

A continuation of the current price raises viability questions for the higher-cost producers, with two scalps already claimed by the price slump — the Cairn Hill mine in South Australia and the Roper Bar mine in the Northern ­Territory.

Analysts at Standard Bank said on Friday that the fourth quarter (December) supply-demand balances for the iron ore sector were shaping up to “look relatively ugly’’.

“If (Chinese) pig iron output rates follow patterns of past years and fall, on a volume basis, by up to 5 million tonnes a month, this is likely to have a far greater negative impact on pricing than in past years when Australia’s supply glut was not yet evident,’’ the bank said. “While some (steel) mills may try to retain higher stocks in anticipation of the March (2015) restock season, others, suffering tighter cashflows, may not enjoy such luxuries and be forced into destocking to prevailing demand conditions, rather than future hopes.’

“As a result, we are more concerned about fourth quarter downward price performance than any prior year for the past decade — apart from the GFC in 2008.’’

Conventional wisdom, like that espoused last week by the ­Bureau of Resources and Energy Economics, has been that iron ore prices will recover to a trading range of $US90-$US95 a tonne over the next five years as China’s steel production rises from about 800 million tonnes to reach 900-950 million tonnes a year.

BREE has not ruled out the possibility of prices falling to the low $US70s for a time. “It could go down that far, but we couldn’t see it being sustained at that sort of price level. We still expect a downturn in price. The peaks won’t be as high and the troughs will be a bit lower,” BREE deputy executive director Wayne Calder told The Australian last week.

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Big iron miners too bullish on steel growth, says Chinese expert
THE AUSTRALIAN SEPTEMBER 22, 2014 1:43PM

Matt Chambers

Resources Reporter
Melbourne
Barry FitzGerald

Resources Editor
Melbourne
BHP Billiton and Rio Tinto are over-estimating long-term Chinese steel production growth and iron ore prices are unlikely to rise from current depressed levels, according to a senior representative of China’s steel industry.

Li Xinchuang, deputy secretary-general of the China Iron and Steel Association that represents China’s biggest state-owned steel mills, said Chinese steel production, now at about 800 million tones per year, could not grow beyond 900 million tonnes.

“That will be the peak level, we understand it cannot go over 900 million tonnes — we think roughly 800 million to 870 million,” Mr Li said on the sidelines of the International Mining and Resources Conference in Melbourne.

BHP and Rio, who are increasing iron ore production and putting pressure on prices, are both forecasting Chinese steel production will peak at 1 billion tonnes per year or more.

“It cannot, trust me, I have been in the business 30 years,” he said.

Asked whether BHP and Rio misunderstood China, Mr Li said: “Maybe they keep that story for investors, I don’t know.”

Mr Li, who is also president of the China Metallurgical Industry Planning and Research Institute, said the figure was based on previous steel use rates when industrialised nations like the US and Japan peaked in their steel use.

Mr Li said he did not expect prices to rise from current levels of $US81.70 per tonne, a rive-year low.

“My understanding is the price will be around $US80 for a long time because of the volume being produced,” he said.

The average price for iron ore the year to date is now $US105.20 a tonne, down from last calendar year’s average of $US135 a tonne.

A continuation of the current price raises viability questions for the higher-cost producers, with two scalps already claimed by the price slump — the Cairn Hill mine in South Australia and the Roper Bar mine in the Northern ­Territory.

Analysts at Standard Bank said on Friday that the fourth quarter (December) supply-demand balances for the iron ore sector were shaping up to “look relatively ugly’’.

“If (Chinese) pig iron output rates follow patterns of past years and fall, on a volume basis, by up to 5 million tonnes a month, this is likely to have a far greater negative impact on pricing than in past years when Australia’s supply glut was not yet evident,’’ the bank said.

“While some (steel) mills may try to retain higher stocks in anticipation of the March (2015) restock season, others, suffering tighter cashflows, may not enjoy such luxuries and be forced into destocking to prevailing demand conditions, rather than future hopes.’

“As a result, we are more concerned about fourth quarter downward price performance than any prior year for the past decade — apart from the GFC in 2008.’’

Conventional wisdom, like that espoused last week by the ­Bureau of Resources and Energy Economics, has been that iron ore prices will recover to a trading range of $US90-$US95 a tonne over the next five years as China’s steel production rises from about 800 million tonnes to reach 900-950 million tonnes a year.

BREE has not ruled out the possibility of prices falling to the low $US70s for a time.

“It could go down that far, but we couldn’t see it being sustained at that sort of price level. We still expect a downturn in price. The peaks won’t be as high and the troughs will be a bit lower,” BREE deputy executive director Wayne Calder told The Australian last week.

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Iron ore slides below $US80
DANIEL PALMER SEPTEMBER 23, 2014 4:15AM

The price of iron ore has continued its sharp retreat overnight, ending below $US80 a tonne for the first time since September 2009.

The latest dip -- which forced the London-listed stock of BHP Billiton (-3.3 per cent) and Rio Tinto (-3.8 per cent) sharply lower -- is an exclamation point on a prolonged slump that has seen the commodity fall over 40 per cent this year.

By the end of the latest session benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US79.80 a tonne, down 2.3 per cent on its previous closing mark of $US81.70.

The fall comes ahead of key data out of China later today that will highlight the strength of the nation’s manufacturing sector. The reading could have a significant impact on the market, with further signs of weakness adding to demand fears.

While demand has been soft, the main story this year has been one of increasing demand as the likes of Rio and BHP sharply increase production.

The two mining giants hold predictions of peak steel demand in China reaching one billion tonnes, but they received a strong warning from a senior representative of China’s steel sector yesterday that such a mark was not possible.

“It cannot (get to one billion), trust me, I have been in the business 30 years,” Li Xinchuang, deputy secretary-general of the China Iron and Steel Association, said.

“We understand it cannot go over 900 million tonnes — we think roughly 800 million to 870 million.”

Mr Li added that prices were unlikely to rise back to $US100 a tonne, or even levels around $US90.

“My understanding is the price will be around $US80 for a long time because of the volume being produced,” he said.

Mr Li’s comments follow a weekend prediction from Standard Bank analysts that iron ore will see its worst fourth quarter performance since 2008.

Traditionally the fourth quarter is a strong one as stockpiles are built up ahead of the Chinese winter.

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Jaded iron ore producers hit the pain barrier
THE AUSTRALIAN SEPTEMBER 24, 2014 12:00AM

Barry FitzGerald

Resources Editor
Melbourne
Barry FitzGerald


Iron ore costs Source: TheAustralian
THERE is nothing psychological about iron slumping to below $US80 a tonne. But it can be thought of as a pain barrier given the number of local producers that cannot turn a buck at these prices rises to alarming levels.

At yesterday’s closing spot price of $US79.80 a tonne, as measured by The Steel Index, questions marks are raised about the long-term economic viability of all but three local producers.

Those on the right side of the $US80 a tonne barrier are Rio Tinto, BHP Billiton and Fortescue. But the rest of them — Atlas, Gindalbie, Grange, BC Iron, Arrium and Mount Gibson — will be finding the going tough if prices remain at these levels, with the only current offset being a welcome fall in the currency.

From a national economic perspective, it is a good thing that the vast bulk of the nation’s iron ore exports are in fact locked up with the operations of Rio, BHP and Fortescue.

But as the thrashing of their share prices in recent days demonstrates, the replacement of last year’s 200 per cent margins with more sedate 70 per cent (Rio and BHP) and 10 per cent margins (Fortescue) means their elevated profits of recent years are fast becoming a distant memory.

Canberra should be getting nervous as the slump in profits from what has been the only seriously profitable component of the mining industry means that tax receipts and royalties are now also under pressure.

At its current spot price, iron ore is at its lowest level since September 2009, a year after the collapse of Lehman Brothers, an event that marked the onset of the global financial crisis. That is not to relate the collapse in iron ore prices — they averaged $US135 a tonne last year — to a GFC-like event.

The collapse in prices is all about the economic slowdown in China, the world’s biggest consumer of the steelmaking raw ­material, at a time when the Pilbara producers in particular have being adding mountains of low-cost supply (to capture those now gone 200 per cent margins) faster than demand has warranted.

It has been clear as day for the last couple of years, but the producers and sell side equity analysts have clung to the thematic that Chinese steel production — already the world’s biggest by a massive margin — would continue to grow hand-over-fist and absorb the new capacity without damaging the iron ore price.

Recent events have proven that wrong, and there have been voices telling us so. Most notable was the recent warning from former senior BHP executive Alberto Calderon that Australia faces a permanent fall in prices as growth in the Chinese economy becomes increasingly driven by private consumption.

The Yale-trained professor of economics — one of the contenders for the top job at BHP that went to Andrew Mackenzie — said it was not difficult to see why iron ore prices have collapsed and why they will go even lower, tipping a retreat to the low $US70s a tonne for several years.

There has been plenty of headshaking among the Chinese too on the narrative in this market that a rebound to $US100 a tonne was a deadset cert. Time after time there has been commentary that $US80 a tonne was about right. But no one here wanted to listen.