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The cost of iron ore continues to decline

1 December 2014

The cost of iron ore is gradually approaching the minimum level 5letney ago — the end of November the price of one ton of raw materials in the Chinese port was 71 USD. However, Russian manufacturers by and large benefit, despite the low revenue from the commodity segment. Since January 2014 ore costs fell by 2 times, and analysts together with metallurgists agree on what the main factors that caused the decline — the imbalance in tandem «supply and demand», the development of new mining projects and reduced ore consumption with China. With an annual production of 650 mln. Tons of iron China consumes more than 1 billion. Tons of raw materials are exported to about 75%, accounting for over 50% of world consumption. But, despite the fact that China will continue to consume iron ore in large enough quantities, the world market does not allow to improve its value. In addition, world steel consumption is also reduced, which negatively affects the price.

Despite the decrease in the value of the ore, the majority of Russian producers to successfully cope with the problem by increasing the profitability of the steel segment. By results of the third quarter margin EBITDA «Severstal» is 28.4%, NLMK — 27%. The cost of steel smelting raw material from «Severstal» 21%, MMK — 27%, NLMK — at least 20%, and of Evraz — 14%. However, in the ore segment, visible and positive moments — as claimed by the representatives of «Severstal», owned by «Karelian Pellet» and «Alcon» still provide a positive EBITDA of, despite the emergency the August production a stop in one of the pits due to unreasonably high costs. However, the implementation of the concentrate from the «Olkon» does not bring the necessary income.

Exports of «Mechel» gradually decrease in volume — the company prefers to redirect ore on its own Chelyabinsk Metallurgical Plant. According to the specialists of NLMK, the cost of producing concentrate on company-owned Stoilensky processing plant is almost the lowest in the world, accounting for about 18 USD per ton, and of 15 million. Tons of annual output of 12 million. Tons is for domestic needs. What to Evraz, the company got rid of a number of loss-making assets last year. Experts believe that the greatest benefit from reduced cost of ore gets MMK, counting on an increase in EBITDA in the current year to 250 mln. USD.

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