No-one dictates the iron ore price. It's basic age-old demand and supply, and the current prices reflect the market is under supplied.
The long run iron ore price is determined by the cost of marginal supply. At the moment these are the chinese operations at the far right of the cost curve. Analyst consensus is that in the longer term marginal supply will be around 70-80/t
While SDL is a relatively expensive project compared to other options it still has a positive NPV. Why - well at long term prices of 70-80/t it still will return a decent profit. So it looks significantly better than the marginal project. The logical extension is that developing SDL wont make a difference to long term price expectations - if it did then of course it wouldn't get built in the first place as it would kill its own returns
So the likes of rio, bhp and vale will continue to develop their internal low cost pilbara and Brazilian brownfield expansion options, and in rio and vales case a further option for high grade DSO from simandou, that are more attractive than SDL (even before the acquisition cost is factored in) on the basis that in the end the far right of the cost curves sets the price, not the amount of ownership in the first 3 quartiles.
Lastlty in a hypothetical world where producer ownership of SDL could actually dictate the price of iron ore, do you think regulators would let the big 3 take it?
SDL Price at posting:
37.7¢ Sentiment: None Disclosure: Not Held
