Rio Tinto Lowers Iron Ore Price Amid Soft Demand

Mining behemoth Rio Tinto is jumping on the bandwagon and lowering its iron ore price as surging supply and weak demand from Chinese steel mills continues.

The iron ore price dropped to $89 a ton on Tuesday – its lowest level since September 2012 – as concerns about too much supply sitting at Chinese ports weighed on the minds of investors. The UK Company is following fellow iron ore miner Fortescue Metals Group by discounting the price of its low-grade iron ore.

“Demand for low quality product is plummeting,” Tim Murray, managing partner of J Capital Research said. He mentioned that demand has been falling at the same time supply has been rising.

Rio Tinto told customers on Tuesday the discount for its low-grade product would be lifted from six percent to 13 percent from July 1, leaving it to receive roughly $73 a ton.

Earlier this year, Fortescue CEO Nev Powers moved to reassure investors in Hong Kong about the risks of falling iron ore prices on the company’s profitability and the threat posed by increased mining rivals in China. Fortescue Metal’s breakeven price for iron ore is around $75 a ton, which is similar to Rio Tinto.

According to Credit Suisse head of Australian equity sales Chris Mayne, the markdown on price is a result of high supply and low demand. “The heavy discounting is partly a reflection greater supply of lower grade ore and combined with lower supply of Chinese high grade ore to blend, which has caused the discount to revert back to what was seen prior to 2010 which is 10-20 per cent discount to 61 per cent grade ore rather than close to parity that the market has been used to over the last two years.”