I disagree with the view that iron ore will bounce hard. The job...

I disagree with the view that iron ore will bounce hard.

The job of BHP and RIO is only half done at this point and their strategy is exactly the same as OPEC - that is to cut the higher cost producers from the sector to reduce long(er) term supply.

Everyone is enduring pain right now but there have yet to be a large number of failures.

Bahar - your logic is not sound in that after BHP and RIO finish their process BCI, AGO, et al will bounce. The whole point of this is to crush these competitors out of business - just as Saudi is doing to US Shale.

It won't stop until BHP and RIO have achieved this.

The pain will only be felt in the sea borne market and not within China. This is because China is / will subsidize those domestic producers that are important to keeping Chinese employed.

Macro Business make a good point that in adjusted terms over the last 100 years the average iron ore price is c. $60 t. Roy Hill coming online won't help the small guys by their estimation as it will come into the production curve in third spot, behind RIO and BHP.

Within the next few years the supply surplus moves to +250mt p.a. according to their analysis.

MB's analysis shows that FMG is the marginal supply that needs to be removed from the supply side and they sit c. 4th on the cost curve so anything above that is toast.

A falling AUD is going to help but then again the BRL is also falling so the competition will continue until the supply and demand variables find equilibrium - a last man standing scenario. It is as it always was ... a boom and bust cycle.

Excess capacity has been built in the sector based on 2009 - 2011 stimulus in China building roads to nowhere and empty cities and now that the supply is coming on stream there are problems.

It's going to be bloody tough, IMO. Regardless of my post, good luck.

Cheers
John