S&P: Major miners on credit watch as iron ore price plunges

Some of the world's biggest iron ore miners were Tuesday placed on "credit watch negative" by Standard and Poor's (S&P), as the price of the commodity continues to plunge amid a supply glut and soft Chinese demand.

The global ratings agency said the credit watch changes were due to a lowering of its iron ore price forecasts to US$45 per tonne for the rest of this year, to $50 for next year and $55 for 2017.

The previous forecasts were $65 for this year and 2016, and $70 for 2017.

The price of the metal, a key ingredient in steel-making, has fallen by 60 percent over the past 12 months to reach a decade-low of $47.08 in early April.

The eight iron ore producers being watched by S&P are Anglo-Australian giants BHP Billiton and Rio Tinto, Brazil's Vale, Australia's Fortescue Metals, Anglo-South African firm Anglo American, Chile's CAP, Luxembourg-based Eurasian Resources and South Africa's Exxaro Resources.
"The revision of our price assumptions and the sharp fall of iron ore spot prices reflect the severe supply and demand imbalance in the market, which we believe could persist for the next two years," S&P said in a statement.

It added that the lower price forecasts were due to the continued increase in iron ore supply by major miners, softer growth in Chinese demand and higher-cost producers remaining in the market longer than expected.

S&P's revisions came as Atlas Iron, a West Australian junior miner, said last week it would suspend mining operations "due to recent significant falls in the iron ore price".

"Despite an extensive cost-cutting programme, to which staff and contractors have made significant contributions, the global supply-demand imbalance for iron ore has driven prices down to the point where it is no longer viable for Atlas to continue production," the company said in a statement.

The world's four biggest iron ore exporters -- BHP Billiton, Rio Tinto, Vale and Fortescue -- which make up 70 percent of the market, have ramped up their production to maintain their share of exports, exacerbating the price weakness.

Smaller mining companies such as Atlas, which have higher production costs, have been battling to survive the challenging conditions.

The decline in prices has also been made worse by shrinking production costs on the back of weaker energy prices and falling currencies in commodity countries like Australia, the ratings agency said.

Australia's Treasurer Joe Hockey warned Monday the iron ore price could drop as low as $35 a tonne, hitting the government's revenue.

"There seems to be no floor," Hockey told The Australian Financial Review. "We are contemplating as low as $35 a tonne."