Vale pips Rio Tinto in iron ore
The global iron ore industry remains highly profitable as top miners’ costs are far below current prices, according to Macquarie Wealth Management, which says the mantle of the “most valuable” business has shifted from Rio Tinto’s Pilbara to Vale’s pellet operations.
More than 95 per cent of worldwide supply generates cash at $US60 a tonne, and even at $US50/t, up to 90 per cent of the market remains cash positive, Macquarie said in a research note.
When adjusted for quality to allow for comparison, as well as factoring in shipping to China, Vale’s pellet business “has replaced Rio Tinto’s Pilbara operations as the most valuable iron ore business in the world”.
The global iron ore industry is dominated by a handful of major producers, including Brazil’s Vale, BHP, Rio and Fortescue Metals Group. While benchmark iron ore fell slightly last year, it still averaged almost $US70/t, and Macquarie’s analysis highlights how the top producers’ robust margins insulate them from any downturn in prices.
China is the largest iron ore importer and a crackdown on pollution has boosted demand from mills for higher-quality ore and some forms of pellets. That’s been a boon for Vale, which is developing very high-quality deposits.