FMG’s cost curve assumes 300 million tons of high-cost Chinese domestic iron ore concentrate sits at the top of the seaborne cost curve, in the range of $120-$165/ton, according to the bank.
Although from past published analysis, they say BHP estimates that Chinese ore exhibits a more normal seaborne-miner cost distribution spectrum, with perhaps only 100-120 million tons of Chinese material sitting at the top of the cost curve, and their latest cost curve publication suggests these tons sit more in the $120-140/ton range.
Those at Standard Bank themselves go on to say they estimate the total Chinese cost curve ranges between about $40/ton and $130/ton, with the higher cost curve being in the region of $110-130/ton after recent increases in power and rail costs.
The divergence comes, in the bank’s opinion, from a failure to fully allow for cost reductions the Chinese mining industry has managed to drive across the bulk mining sector since early 2011.
While miners in Australia and elsewhere have faced rapidly rising costs in wages, power and currency, the reverse has been the case in China where wage costs per ton have fallen, energy costs have fallen, taxes have fallen and currency translation rates have fallen with an appreciating RMB.
The bank concludes by observing that China was first to cut costs and was forced to cut hard, when Beijing began to tighten monetary policy in mid-2011, leaving the industry in a much healthier position relative to the cost of production overseas than many are giving them credit for.