iron ore news, page-45

This is soemthing athat has been bugging me for a while now. The expect talks of a Fe glut.

I really don't think many of these analysts look at the bigger picture. They are to focused in my opinion of the increase in capacity story and their projections. Reality rarely matches projections.

Capacity is obviously what they are able to produce at peak production. Production though does not have to be at capacity.

So we have a situation where RIO, BHP and FMG are increasing their capacity to produce. This does not mean they will produce at that level. Much of this new capacity IMO would also be to meet needs of demand a decade from now.

An analogy I think is with the oil industry. There is a number of large players that have the capacity to produce at much larger levels then now (eg Saudi Arabia, Kuwait etc) but they do not. The reason is they are effectively a cartel (OPEC) and produce at a level that gives them a price for their product they are comfortable with.

Now while no official cartel exist, BHP, RIO and Vale control more than 60% Fe seaborne trade. If you add in FMG and AngloAmerican that raises to at 75%.

This in my opinion gives the big Fe miners the pricing power. They can and probably will act just like a cartel. The level which they will be happy at for the Fe they sell is the question IMO.

IMO it will be the goldie locks zone of not to little and not to much, but just right. Don't forget these miners are dependent largely on the Fe price for much of their profits. To produce to a rate that deteriorates profits is bad for business and bad for the stakeholders management are answerable to.