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BHP Billiton and Rio Tinto Could Capitalize on Falling Iron Ore Prices

The price of iron ore has dropped dramatically, falling 44 percent since its peak in February 2013. And while that suggests bad news for most, it actual...

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|Jun 22|magazine4 min read

The price of iron ore has dropped dramatically, falling 44 percent since its peak in February 2013. And while that suggests bad news for most, it actually means quite the opposite for two of the world’s largest iron ore producers.

Rio Tinto Group and BHP Billiton Ltd. have the ability to take advantage of the mounting pressure low prices is having on smaller rivals in China. Almost $40 billion a year of iron ore is mined in China and the price plunge has caused roughly 30 percent of the mines to shutdown.

Sarah Wang, a Shanghai-based analyst with Masterlink Securities Corp. believes the timing is now.

“Many smaller mines in China have stopped production due to the falling prices. It’s the right time for BHP and Rio to seize the opportunity to boost their market share.”

The price of iron ore is at $89 a dry one, a 21-month low, and financial analysts expect the price to drop as low as $80 in the second half until averaging at about $90 next year. Rio Tinto CEO Sam Walsh said earlier this month a drop to $80 would see a lot of his competitors “disappear.”

“The majors are probably thinking they are well placed to take care of that market, they can increase production if other producers fall by the wayside,” James Wilson a Perth-based analyst at Morgans Financial Ltd., said.

The two mining companies Rio have recently discounted the price of low-grade iron ore.