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The Economics of Iron Ore – or ‘not everything is cheap in China’

Posted by bodawei August 10, 2010 in the Group General Discussion .

Rio Tinto mines iron ore in the Pilbara at cost of about US$20 per tonne, and pays freight for transporting the ore to China of between US$8 and US$10 per tonne.  In this September quarter it is receiving a price of a little under US$160 per tonne.  (Price falls to US$130 per tonne next quarter.) 

Subtract production and freight costs from contract prices (160 – 28 or 30) = US$130 per tonne (approx.) in profit.  [Rio currently produces around 230 million tonnes per year.] 

Source: John Garnaut (Tuesday 10 August 2010), ‘How Lucky to sit at the peak of a boom’, The East is Red, Sydney Morning Herald. 

‘The Lucky Country’ do I hear you say?  Admittedly the numbers look pretty good.  The arithmetic has of course stirred Chinese production, but Australia is still enjoying a ‘resources boom’.  Unfortunately, the big miners can afford those expensive TV ad campaigns informing fellow citizens that the Government’s planned resource rent tax will ruin the whole economy (and not just their annual bonuses.)  

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