TMR: What's your forecast range for iron prices over the course of 2014? Is it above $120/ton?
ML: We expect prices to get back above $120/ton, closer to the $125–130/ton range by the end of this year. Again, like copper, we do see this increase in infrastructure spending in China, South Korea, India and Brazil as a bullish signal for steel demand. We also expect China to produce over 20 million (20M) vehicles this year, so we see steel demand rising out of the consumer sector. Meanwhile, China is also trying to increase the quality of its steel. This generally means that there will be increased demand for iron ore. Finally, supply, which increased significantly last year, should level off this year since Australia is producing at close to full capacity given the infrastructure constraints currently being experienced in the country.
TMR: Big iron miners, like Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK), produce iron at $30/ton or even $20/ton at some operations, but smaller miners generally have much higher production costs. Midtier producer, Cliffs Natural Resources Inc. (CLF:NYSE), is already experiencing a shareholder revolt over poor share price performance. What does all this mean for investors in this space?
ML: It's true that Rio Tinto does have some production in that cost range. If you looked around the world, the cost production for the majority of iron ore mines is considerably higher. Some Chinese production has costs of around $100/ton. So the question becomes, will companies produce at a small profit, or will they take some of that iron ore out of the market? Our expectation is that the Chinese will take some of those smaller inefficient mines out of operation.
https://www.mining.com/web/mark-lackey-what-happens-to-a-mine-deferred/