The Chinese steel mills, understandably, try to set the tone each year for the price negotiation citing softer demand and eroding margins for their steel products.
Having said that,the market forces with the ever dithering Europeans policy makers would logically and not unexpectedly cause a softening in the price of iron ore.
The important figures as far as FMG is concerned are, in my view,$160/tonne(currently FMG is getting for the ores) and $50/tonne(cost of production from its current mines).Solomon is expected to have a lower production cost. Anything north of $50/tonne, FMG remains profitable.
How much do we expect the price to drop by given that China needs to continue to modernise and that India has put a restriction on their export of iron ore.
How much do we really expect the price to drop by from here? Even if you factor in an unlikely 50% drop to $80, FMG remains exceedingly profitable.
If the price to drop to $50/tonne in a market calamity, it would wipe out most smaller players resulting in significant drop in supplies...
These are factors which actually makes FMG a compelling by at this level.
I also noted that the article you quoted has a Chinese co contributor. SMH is running an almost identical story today and again with the same co contributor.
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