Oz economic bust thanks to Big Australian, page-7

Do people seriously think that if BHP and RIO had not reduced their production costs all of the other iron ore miners would have left the market demand unmet and held back on new mine investment letting the price to skyrocket? That never happens except in fantasy dreamland. Vale expanded, we have FMG and soon will have Roy Hill very large operations coming in to meet demand and future demand.

The Iron Ore price along with all commodities is manipulated in short term oscillations by artificial iron ore investors meddling in the market. Investment bankers and the like with money making agendas and enormous capital can at least temporarily skew markets to make money but they can not take delivery of the product so at some point reality comes in to force. The reality is that any dramatic price shift from long term average will be short term because if no miners make money then production will at some point stop till the price makes the effort worthwhile. Demand will drive price to long term averages again when the delivery schedule approaches and the investment bankers make their short term money and sell the shipment for profit to a real world consumer who can take delivery.

The big low cost producers in a low price game setup by the money men eventually have all of the volume because no other producers are in the game to lose money, at that point they can exert more influence on prices to some extent due to lead times to ramp up competition. If sufficient real long term demand exists that exceeds their capacity to supply prices go up and the big miners make cream.

People need to remember that higher cost producers that are not blue chip investments are riskier investments long term. Bad luck if you bought in to high cost iron producers in the last 12 months and did not sell, it sucks to be you. If you hold BHP and RIO you will earn good dividends thanks to the increased volume and the AUD exchange rate movement and when prices return to long term averages driven by real world demand you will see SP gains and dividends cream.