Iron ore price, page-52043

I have had a look at the Vale financials for March qtr released yesterday and there are a couple of really interesting observations.

the break even point for Vale has blown out to USD 69.90 per tonne. This is 6% up on the March qtr 2023 figure of USD 65.90. sales were 15% up as well year on year so if anything the break even should have been slightly lower with better economies of scale.

net debt has blown out to over USD10b and expanded net debt 16b (inclusive of disaster provisions)

the trend has been like this for several years. I’ve also included the 2022 and 2021 break even figures for March quarter as a comparison. (Screen shots 4 to 6)

in March 2021, break even was USD 44.20 and March 2022 was 53.20. The break even has been steadily increasing despite sales in Mar 2021 only being 5mt more than Mar 2024. The break even has increased however from USD44 to USD69.90 in only three years.

vale also had no net debt in Mar 2021 and this has increased substantially to over USD10b in 3 years or USD 16.4b including the provisions.

what analysts are not getting is that the cost curve has increased significantly for many IO miners. Vale alone is up near USD 70 for the Mar quarter. If inflation and other inefficiencies continue to take hold, there will come a point soon where a drop in steel demand won’t translate to much of a drop in IO prices as many marginal producers will opt out of the market with any price pullback,

while vale is a long way from that still, it shows that the floor in IO price will be much higher now than a few years back. FMG has such a low cost base that high inflation won’t translate to a substantial increase in break even costs in $ terms. This is where it has a competitive advantage and it, along with the other Oz majors will enjoy stronger barriers to entry.