Evil mining firms? Please. Obeying profit motive is KINDER to the environment

Iron Age ends... and a point is proven

Worstall @ the Weekend Goldman Sachs has released a note to investors shouting that this is the end of the iron age. But it's not talking about how pointy bits on spears are now replaced by lead in bullets: rather, that the age when owning a mountain of iron ore was a route to easy billions is over.

We don't need your

I wouldn't normally bring such a thing to your attention but the implications of this allow me to explain further why all that "Limits to Growth stuff" is still bollocks, as we discussed last week.

The iron ore price, by the way, has been plunging for years and still has has further to fall, say analysts.

It seems the environmentalists have added a second string to their bow. After we mineral extraction types pointed out that there's no actual shortage of ore we can dig up and make stuff out of, they go on to talk about costs and expenses and energy requirements. Their point is that obviously, human beings being intelligent, we've dug up all the easy stuff first and thus those future reserves and/or resources are going to take ever more energy and effort to get anything useful out of. Those of us who have followed the Peak Oil argument over the years will recognise this tactic. What the little story about iron ore allows us to do is to test that theory.

It's bollocks by the way, just to alleviate any tension you might be feeling about the result. But let's dig into why this is so.

Why the price slash?

Goldman is pointing out that China's startling growth is slowing a bit, lots of iron ore mines have been developed in recent years, so there's more supply and while demand might not be quite falling, or not much, we are not seeing the previous growth in demand.

So, we see the market moving into oversupply at current prices and thus prices fall. Which they have done: $140 a tonne wasn't unusual a year or two back for spot loads (ie, a ship just being there full of ore. “Contract” is when a steel mill makes a long term deal with a mine for so many ships a year.) In fact, $80 is looking a great deal more likely these days.

So, obviously, some of those iron ore mines are going to close (more technically, go on “care and maintenance”, possibly to reopen if the price recovers). All of this is obvious with even 10 seconds' thought. But it's the next bit that is interesting.

If the environmentalists are right, in that new mines will inevitably be more expensive to develop than the old mines with the easy stuff in it, then when mines close because of falling prices it must be the new mines that close, right? Because, by their definition, the new mines are the more marginal, thus the more expensive, prospects. So, is this actually true?

Here's the Sydney Morning Herald on the issue:

It's "the end of the Iron Age," according to Goldman Sachs. With miners battling iron ore prices at five-year lows, up to 235 million tonnes of iron ore capacity is expected be taken out of the market in the next 18 months. Oversupply coupled with a slowdown in the rate of growth in China has seen the steel making ingredient fall 38 per cent this calendar year to $US83.20 per tonne.

OK, so we have the oversupply, the falling prices and the closing of mine capacity.

Fortescue Metals is the best placed pure play iron ore miner at the current price level, Mr Wilkins said. It is the only pure play iron ore miner that generates cash with the current iron ore price, Mr Wilkins said.

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