The price of IO is not being driven down by the buyer (China Steel Mills) as a result of demand, it is being purposely driven down by the key suppliers, similar to the Saudi's trying to quash US Shale Oil production. The big 4 which now includes FMG are trying to curb supply from lower quality IO producers by pricing them out of the market and causing them to fail. China and India have plenty of low grade miners. Lower IO prices also kill feasibility studies on new projects in countries that cannot produce high quality IO, or in countries where there is high quality IO but the political instability is a concern (African countries) so the billions of dollars in Cap Ex is not worth the risk in these countries whilst the margins are low.
Short Term (1-2yrs) IO prices are a good thing for this country and companies like FMG. As bad as it sounds, it helps our country maintain the monopoly on IO. OPEC do it with oil and the Big 4 do it with IO.
FMG will ride this out. They have solid infrastructure and a reducing cost base.
There is a good opportunity for a smart long term investor to capitalise in these times. BHP, RIO, FMG all represent good value for the long term player.
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