Loss making iron ore miner Arrium's cost cuts are failing to keep pace with plunging prices, putting its hopes of a brighter end to the year in doubt.
The South Australian miner received an average price of $58 per tonne of iron ore during the March quarter, down from $74 a tonne in the previous three months.
Costs fell slightly to $66.90 per tonne, meaning a loss of $8.90 on each of the 859,000 tonnes shipped in the March quarter.
It's a further deterioration from Arrium's $1.5 billion loss in the first half of the financial year, which was largely due to costs associated with the closure of a mine.
Iron ore prices have more than halved in the past year as demand from China slows and production increases, putting many miners under immense financial pressure.
"The sustained decline in pricing has forced producers to rapidly reduce costs with many high cost producers being displaced from the market," Arrium said.
Analysts expect the situation to get worse before it gets better, as mining giants BHP Billiton and Rio Tinto continue to ramp up production, putting pressure on the smaller miners.
The federal government is now factoring in a price as low as $US35 a tonne into its budget calculations, which would amount to an up to $US25 billion hit to revenue over the next four years.
Arrium, formerly known as OneSteel, said in February it expected prices to remain low, but flagged an improvement in second half earnings due to increased volumes, lower costs, increased steel profit margins in Southeast Asia and a lower Australian dollar.
Bell Direct equities analyst Julia Lee said Arrium's improved steel making operations were being outweighed by falling iron ore prices.
"It does look like there will be an improvement in the steel business during the second half but really what it's relying on is a movement up in the iron ore price," she said.
As a higher cost producer, ron ore prices have a significant effect on Arrium, Ms Lee said.
"Basically it's a highly leveraged investment into iron ore ... the reason you'd buy into a company like this is because you are bullish on long term iron ore prices."
Arrium shares dropped two cents, or 11.8 per cent, to 15 cents, just above their recent all-time low.
Share
