Thursday, January 8, 2015

BHP Billiton: When Iron Ore Miners Act Like They're OPEC

This article was first published by Seeking Alpha on December 17, 2014.
By Sarfaraz A. Khan
Over the last few months deteriorating crude prices, which plummeted to their five-year lows, have been making headlines. But crude isn't the only commodity touching multi-year lows -- we also have iron ore.

Unlike WTI crude oil, whose slide began around six months ago, iron ore, the key ingredient in steel, has been going in downhill since December 2013. The commodity's price, which largely stayed above $100/dry metric ton between November 2009 and May 2014 and reaching one of its highest levels of $190/dry metric ton in February 2011, touched $70 in November -- its lowest levels in five years.
The weak pricing environment has been caused by ever-increasing supplies, partly from the big boys of this industry such as BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), and Vale (NYSE:VALE) as well as weak demand from China.

China became the world's leading iron ore buyer on the back of its rapid economic growth over the last two decades. In fact, in the last 10 years amid the economic boom, nearly 184 million Chinese moved from rural areas to urban centers. This led to an unprecedented growth in the demand for steel, which was used in the construction of small houses, skyscrapers, bullet trains, airports, and other infrastructure.
In the third quarter of this year, the country's economy climbed by 7.3% from the same period a year ago. Although the figure looks impressive when compared against U.S. GDP growth of 3.5% in the same period, this was China's slowest growth over the … read full article at Seeking Alpha.