China’s domestic iron ore mining has had a difficult year despite the resurgence in seaborne iron ore prices, according to Lei Pingxi, executive vice president of the Metallurgical Mining Association of China (MMAC). Falling prices will force more capacity out of the market however. This means 2017 could see iron ore stay in a $50-70/tonne range, he predicts, speaking at the Custeel China Steel Raw Materials and Fuels Summit 2016 in Beijing on Thursday.

The operating ratio of domestic iron ore mines has recovered from a low of around 54% in February to around 66%, Kallanish notes. Much of this is opportunistic however and is unlikely to be sustained. Investment in metallurgical mining has fallen 28.9% so far this year, showing that there is still little investor confidence to sustain the sector over the longer term, Lei adds.

Miners meanwhile are still mainly losing money. Of 14 major iron ore mining companies in China, only three were profitable over the first nine months of the year. Mining companies have made a number of improvements to their situation, including reducing their liability ratios and boosting productivity. The reform of electricity markets should also help lower costs in 2017.

Despite this, average C1 costs for domestic miners on a 62% Fe basis are still around $46/t. That means prices at the 2016 average could force some domestic mines to close, and more mines would close if prices dipped lower. The efficiency of the market in eliminating Chinese capacity means that prices should not fall below $50/t, Lei says. The market remains over supplied however, as evidenced by rising port stocks, and so prices should not be able to break higher than $70/t.