Business And Markets

Mines Shut Amid Iron Ore Slump

Mines Shut Amid Iron Ore SlumpMines Shut Amid Iron Ore Slump

The government should place a higher priority on mining industry in its 20-Year Vision because the global slump in the price of iron ore has led to closure or semi-closure of roughly 23 mines in Iran, Sajad Ghoroghi, board member of the Iron Ore Producers and Exporters Association in Iran (IROPEX) told Foolad News.

“Iran currently holds 3 billion tons of iron ore reserves, of which nearly 3 billion tons is known,” Ghoroghi said. He added that as the glut in iron ore intensifies, the government should protect the mining industry because this industry is crucial for the country’s long term growth.

Iron ore prices are down globally as supply has been outpacing demand. On the one hand Chinese demand has been on the decline while on the other hand companies have been increasing iron ore production. In response to this trend, major firms have been aiming to produce at lower costs in order to force smaller, higher-cost producers out of the market.

“About 150 private iron ore mines are active in the country, together they produced more than 14 million tons iron ore last year, and 85 percent [of this amount] was exported, 23 mines in the north of the country have been closed or semi-closed in response to the global downward trend of prices in the current year,” Ghoroghi said.

Iranian mine operators are grappling with this fall in the price of iron ore. According to Ghoroghi, the country’s mines are operating at very low capacity as profitability has taken its toll.

Mine operating costs surged by 25 percent. In addition, the sharp decline in mining fuel rations as well as higher prices of energy in the sector have increased production cost.

An unprecedented tax increase on mines has led to an outcry from state-owned mining corporations, which operate as lobby groups in the government. The corporations argue that the way the government calculates tax contributions is unfair.

Mine operators are asking the ministry of industry, mines and trade to double check and reconsider the tariffs.

While small mines in Iran and the rest of the world are having hard days, the world’s largest iron ore producers are carry on with record shipments as lower output costs offset plunging prices.

Iron ore fell into a bear market this year as the biggest producers including Rio Tinto Group (RIO) and BHP (BHP) Billiton Ltd. expanded their low-cost output, betting higher volumes would more than offset falling prices while less competitive mines were forced to close. The decline in prices will deepen as a global surplus expands, according to Goldman Sachs Group Inc., which declared the “end of the Iron Age” that had been characterized by tight world supplies and above-trend profits for producers, Bloomberg reported.