Iron ore is up 41% this year; in the last few days, supply to Northern China at 62% Fe has been changing hands at US$60.70/t. The spectacular increase is contrary to expectations in a heavily over-supplied market and by 2018, yet more supply is slated to enter the market. While the 2016 spot price increase looks significant, the current price is only 32% of the February 2011 peak of US$187.18/t, and the increase is measured from a modest US$40/t at the start of 2016. Seaborne iron ore, most of it bound for China, comes essentially from Australia and Brazil, where the big four (Rio Tinto, BHP Billiton, Fortescue and Vale) represent 70-80% of supply. After years of consolidation, iron ore is now back to an oligopoly (a market with limited competition). In the years leading up to the February 2011 price peak, the big producers were effectively able to set prices and determine supply. The mining business is notoriously cyclical, but it is strange that the actions of four large producers tightly controlling supply could result in a glut, triggering a gradual five-year collapse in the price from US$187/t in 2011 to the US$40/t range at the start of 2016, while demand continued. This is shown in the graph below. Until 2008, supply and demand were relatively stable, but the subsequent actions of the oligopoly removed the brakes on supply. After 2008, extraordinary growth in China created an imbalance in demand, causing the oligopoly to break down into normal competition. Just before the super-cycle peak in 2011, demand exceeded supply to such an extent that it triggered unprecedented supply expansion. Producers seeking to establish market share raced mines into production. In an industry such as iron ore, with long project development lead times and high capital intensity, the breakdown of the oligopoly was costly and damaging, with long-term consequences. Players who did not expand in the face of rapidly growing demand risked losing market share. Unfortunately, this resulted in simultaneous multi-billion- dollar expansions: Rio Tinto now produces 360 million tpa, BHP is still targeting 295 million tpa; and once Vale’s 90-million tpa S11B project is complete (2018), its capacity will be 400 million tpa, making it the world’s largest producer. In addition to existing large Australian producers, two new multi-billion-dollar mine investments have joined the re-emerging ologipoly, Andrew Forrest’s Fortescue and Gina Rinehart’s Roy Hill. Fortescue started production in 2008 and is now at 165 million tpa, while Roy Hill came on-stream last year, adding 55 million tpa. These low-cost players were the last straws on the camel’s back and among the catalysts perpetuating the price collapse. Lately, however, the previously dominant theme of producing at maximum capacity to achieve economies of scale and the lowest unit cost seems to have been set aside. Jean-Sébastian Jacques, Rio’s new CEO, says exceeding 360 million tpa is no longer a priority. This is among the first signs of volume moderation and an attempt to optimize price and margin, especially in a future oligopoly. Recently, Rio also backed away from its Simandou mega-mine project in Guinea. Despite a priority change and capital expenditure cutback, Rio announced last week a US$338 million investment in its Australian Silvergrass mine, increasing capacity by 10 million tpa. This is clearly a strategy to produce in a more flexible manner and to respond to market needs, while focussing on margin; a position that will serve Rio well when, in due course, the oligopoly returns to its effective reign. New player Fortescue, with a total resource of 11.8 billion tonnes of 58% Fe grade direct shipping ore and 5.5 billion tonnes of magnetite, has infrastructure capable of greater production. At a recently reported US$13/t (wet tonne, FOB) C1 cost, it plans on maintaining 165 million tpa production, demonstrating its determination to remain a player in the big four club. As growth in demand continues to moderate and supply matures with the completion of additional major mine projects by 2018, there will likely be a growing trend toward an effective oligopoly among the four big players. In these circumstances, if one miner does not emerge with higher margins or if demand wavers and prices collapse, future competition could take on a different flavour to that seen over the previous decade.