JOHANNESBURG – The falling price of iron ore, one of South Africa’s biggest mineral exports, places iron ore producers, such as Kumba Iron Ore, under pressure.
The spot price of 62 percent iron ore fines, which mainly used for steel production, slumped 5.42 percent to $94.39 a ton yesterday, down from the $100 (R1 488) a ton level for the first time since June 6 on improved supply from Brazil and intensifying geopolitical tensions between China and the US.
Iron ore, together with the other platinum group metals, has been one of the best-performing commodities of 2019.
The iron ore price jumped more than 60 percent to above $123 a ton in February, owing to supply disruptions in Brazil and Australia, and record steel production in China.
Seleho Tsatsi, an investment analyst at Anchor Capital, said yesterday low prices would place iron ore producers under pressure.
“Any continued weakness in iron ore means that one of the few commodities that have driven earnings growth for the miners this year is now also under pressure,” said Tsatsi.
Kumba, a unit of Anglo American plc has been reaping windfall profits from higher iron ore prices, while a weaker rand has lowered its costs.
Its first-half earnings soared 239 percent as its average realised prices soared 57 percent a year ago to $108 a ton in the six months to June. It also rewarded shareholders with an interim dividend of R30.79 a share or R9.9 billion.
Kumba Iron Ore, the biggest iron ore producer in South Africa, which fell 3.75 percent to close at R409.64 a share yesterday, while ailing Amsa, the country’s biggest steel producer, closed flat at R2.25 a share on the news.
Luvuyo Booi, an investment analyst at Noah Capital, said the weaker prices signalled the beginning of the end of bumper profits from Kumba Iron Ore.
Booi said the rand had, however, weakened from R13.80 to R14.80 to the dollar, offsetting some of the negatives brought by the decline in iron ore prices.
“To put this in perspective, for every $1 change in iron ore price Kumba’s earnings before interest, tax, depreciation and amortisation (Ebitda) changes by R270 million (R4.02 billion) and for every R0.10 change in rand against the dollar Ebitda impact is R225m,” Booi said.
But Booi said the weakening iron ore price was good for ArcelorMittal South Africa.