Plunging prices for Australia’s largest export, iron ore, has forced Atlas Iron to announce on Friday, it was suspending operations and shutting down production over the next couple of weeks. The announcement will see the loss of 500 jobs at its Pilbara mines and another 75 redundancies at its head office in Perth. The mines will be put on care and maintenance with the hope prices will one day improve.
With four weeks until the Federal Budget, Treasurer Joe Hockey is now modelling the budget around an iron ore price of just $35 USD a tonne, telling Fairfax, “There seems to be no floor.”
According to UBS analysts, the $35 target price is only $1 over the break-even price for Australia’s largest miners, BHP Billiton and Rio Tinto.
The shutdown of Atlas comes at a bad time for the Pilbara region and Port Hedland. According to SQM Research, asking prices for houses in the town has collapsed 22.6 per cent in the last year, down 33.4 percent over the past three years.
Average rents for houses have fallen 34.2 per cent over the year and 51.5 per cent over the past three years.
In February 2015, the ABC reported on a 1965 fibro and iron three bedroom home brought four years ago for $1.3 million, being passed in at $360,000. The hopeful owners’ currently have it listed on RealEstate.com for $590,000. The closure of Atlas will be another blow for the owner.
According to an article published yesterday (‘We travelled across China and returned terrified for the economy’), a Bloomberg metals analyst, Kenneth Hoffman, believes China’s metal markets are “a lot worse than you think.” He commented, “China’s metals demand is plummeting.”
The World Bank has indicated a slowdown of China will have a “significant negative impact” on Australia (‘China slowdown ‘will hit Australia’)
Data released today by the China Customs Bureau show exports slumped sharply in March, down 14.6 per cent for the year. Exports to Europe and Japan was down just short of 20 per cent. Imports were also extremely weak, down 12.3 per cent.
The plunge in iron ore comes about from mass overbuilding in China, something we detailed back in June 2013, (“GFC2 – Will it be made in China?‘)
» Atlas Iron’s decision to suspend production highlights pressure in sector, analysts say – The ABC, 11th April 2015.
» Port Hedland house passed in at auction in million-dollar dive, sign mining boom over – The ABC, 9th Feb 2015.
» We travelled across China and returned terrified for the economy – Yahoo7 Finance / Bloomber, 10th April 2015.
» China slowdown ‘will hit Australia’ – Yahoo7 Finance / AAP, 13th April 2015.
» Budget 2015: Treasurer Joe Hockey manages expectations with forecasts of $US35/t iron ore – The ABC, 13th April 2015.
» Falling iron ore price means BHP Billiton, Rio Tinto might clear only $US1 a tonne – The Financial Review, 13th April 2014.
» Exports slump suggests China’s economy further losing steam, say analysts – South China Morning Port, 13th April 2015.
There is a floor alright Mr. Hockey. Many will feel just how hard the floor is when their faces hit it.
@ Plex
For sure.
And for many they will find that floor hard when they try to sleep on it…..
If we see the miners truly turn unprofitable…well… I guess as GM was the measure of American success, so too is BHPs Australian measure.
I see Western Australia becoming one giant ‘Ghost Town’.
Unfortunately there are still tons of Australians who just dont believe a GFC is going to hit the country. One day it will be common to see house that were listed at 1M going for 400k or maybe even less.
Admin great stuff you are putting on here along with the articles. Enjoy this site.
Australia is due for a large dose of Dutch Disease which is caused by politicians getting a big windfall of income and thinking it will never end. The same happened in Holland when they discovered large amounts of natural gas in the North Sea in the 60’s. As most of our leaders are solicitors and only interested in getting re-elected they did not notice the disappearance of our export businesses and the flow of all our resources into mining. The effects of this illness are very painful and the prognosis is terminal for the middle and working classes. As the saying goes “Those who ignore the mistakes of the past are destined to repeat them”
http://www.imf.org/external/pubs/ft/fandd/basics/dutch.htm
@ Admin:
I agree with LBS:
I hope you’re keeping track of the unprintable comments, so you can bring them out when it does fall down: You’ll have great material when the TV is full of ‘it was unpredictable’ stories are everywhere…
It was totally predictable, and Admin has almost 10 years of evidence!…….
There’s a book deal in there somewhere I’d say 🙂
In February 2015, the ABC reported on a 1965 fibro and iron three bedroom home brought four years ago for $1.3 million, being passed in at $360,000. The hopeful owners’ currently have it listed on RealEstate.com for $590,000.
It’s like these people were born yesterday and were totally unaware of the boom-bust nature of mining… or they completely fell for the “20 year boom” BS of the former treasurer Wayne Swan and numerous others.
Joe ‘Bungle*’ Hockey is in the pilots seat but he has not idea how to fly.
*Bungle was a crap coloured bear in a UK children’s program called Rainbow. Bungle was never right.
They won’t do the work for only $1 over break even… they need to pay dividends. These multinationals will just mothball and move away from Australia for a while until things improve. The government needs to be focusing on job creation in other industries because there is already a lot of miners out of work and it should now be evident that mining will only play a minor role in Australia’s future.
@10 Adam:
Totally agree: Big and multinational business is in full cost cutting mode: Meaning: move as many jobs to cheaper countries ASAP.
So where will the jobs come from? Small business…except that the government has squeezed my local BEC so hard they are locking the doors for good….. So the government is not supporting small business despite all the talk….
Either it’s a complete accident the rich keep getting richer at every roll of the dice…..or it’s all planned.
I’ve become a real cynical bastard over the last 10years…and it gets worse every day… Maybe I should have remained a lemming watching footy and cricket 🙂