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Investing.com -- Citi released a report on the iron ore (IO) market, revealing that IO is the principal earnings driver for the firm’s global mining coverage. The latest proprietary cost curve analysis from Citi indicates a year-over-year increase of 4% in volume-weighted average costs.
However, this rise in costs has been largely mitigated by low freight rates and the depreciation of local currencies.
The analysis covers approximately 80% of global IO exports and suggests that around 230 million tonnes, or 14-15% of these exports, would be unprofitable at a price of roughly $80 per tonne. Citi’s research indicates that the majority of non-mainstream IO supply falls within the $85 to $100 per tonne range.
Looking ahead, Citi notes that Simandou iron ore is expected to enter the market next year, but its full impact on the cost curve will be more pronounced in the 2027/28 timeframe. Currently, iron ore equities seem to be factoring in an average price of $90 per tonne, which is below the five-year average of $123 per tonne, with a historical range of $80 to $235 per tonne.
Citi’s cost curve analysis offers a foundational perspective for long-term investors, suggesting that investment opportunities may arise if stock prices are reflecting values lower than those supported by cost curve analysis. This could provide a level at which prices might bottom out, giving investors a measure of confidence for potential long-term investments in the sector.
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