(Reuters Business Report) – Few people have much sympathy for the mining companies.
Environmentally damaging, polluting, and hugely profitable, finding friends is no easy task.
BUT they also employ millions of people.
Most of them in developing countries, and often poorly paid.
Countries as diverse as Brazil, Algeria and Mongolia rely on mining for much of their revenues.
But most miners are now making a loss on their iron ore production.
Analysts calculate that, on average, they need to sell at 50 dollars a tonne to turn a profit.
The ratings agency S&P has downgraded miners…saying low prices could blight the industry for the next two years.
Some have already gone bust – more may follow.
Colon Hamilton is a commodities analyst at Macqaurie.
COLIN HAMILTON, COMMODITIES ANALYST, MACQAURIE,
“Quite frankly some of these smaller players are going to struggle to survive , and the challenge in iron ore is the price has been coming down to a level to try to convince these companies that they should really not be in this market any more. And that’s a difficult decision when you are a listed company and that’s what you do”
And it’s not just companies and workers that suffer. Governments do too.
Australia’s Treasurer Joe Hockey says the falling price of ore will cost the government 25 BILLION dollars in lost revenues this year..
Money that could be used to build schools, hospitals and roads.
But surprisingly, countries like China are pushing ahead with plans BOOST domestic output – even as demand wanes.
It wants to be less dependent on imports.
JP Morgan’s Patrik Schowitz.
PATRIK SCHOWITZ, JP MORGAN,
“Production capacity is still being added despite the fact that in most regions it is no longer profitable to do so, but that doesn’t necessarily stop emerging market producers”
And that’s a major problem for producers like Brazil.
Already racked by inflation and drought, the country could tip into a full blown recession if ore prices stay low.
Cheap steel may mean lower costs for construction, engineering and infrastructure.
But it can also have a devastating impact in some of the world’s poorest countries… and people.