Potential $18B Loss for Pilbara Iron Ore Producers as Commodity Price Skids Down to $112.90 per Tonne

Investors are leaving the iron ore industry as price of the key steel-making ingredient went down anew to $112.90 per tonne. The 22 per cent cut in iron ore price from the average price of $145 per tonne in the March quarter would result in $18 billion losses for iron ore producers in Pilbara.

The $18 billion estimated is based on an expected production of 550 million tonnes of iron ore in 2013 caused on prices hitting a seven-and-a-half month low due to destocking by Chinese steel mills.

As a result of the lower iron prices, share prices of iron stocks closed 0.88 per cent lower on Thursday, the lowest level for six weeks. Shares of Rio Tinto (ASX: RIO), BHP Billiton (BHP) and Fortescue Metals Group (FMG) slipped 1.35 per cent, 1.18 per cent and 3.35 per cent, respectively. Smaller miners were even hit harder with Atlas Iron shares down 6.1 per cent and Mount Gibson 4 per cent.

The Australian reports that small Chinese mills have been selling iron ore cargoes back to the markets and traders were unloading shipments at a loss because of anticipation of further price cuts. Even if there would be seasonal increased in China's iron ore capability and global demand, iron ore prices would likely continue to suffer from weakness in the second half of 2013, according to commodities analysts of Commonwealth Bank.

The report of lower iron ore prices came out at the same time that a productivity commission study discovered that mining exploration in Australia is becoming more expensive, becoming less attractive to foreign investors.

The report said operating costs are going up, rates of discovery are going down and Australia is now less attractive as an exploration destination. To address these concerns, the report pushed for easing of regulations to reduce cost and improve certainty in the sector.

As a result of these developments, Atlas Iron said it would make a decision on its planned new mine by the end of the financial year. Atlas already has final state and federal mine environmental approvals to develop the Mt Webber mine.

The junior miner based in Perth projects iron ore prices to trade between $120 and $140 per tonne over the medium to long term, but analysts forecast a much lower $100 per tonne longer-term price for the key steel-making commodity.