The key to business is following through. And in the case of iron ore’s relentless drop, respect anyone who can pull off an 1870s-style J.D. Rockefeller “good sweating” – even if it’s the big boys of the commodity space:

“Rockefeller’s audacious battle plan (“Our Plan”), which his brother called “War and Peace,” began in each area with Standard Oil attempting to buy out the leading refiners or dominant firms. If the friendly persuasive acquisition failed, Standard Oil would give the competitor “the good sweating” by cutting prices in the local market and forcing the competitor to operate at a loss. Before long, the competitor would be begging Standard Oil for a takeover.” Source

Many people are upset at the iron ore oligopoly for making the decision to flood the market with supply and gain market share at the expense of pricing. The pundits, and maybe I, would have said it would have been smarter to keep the price at $80 per tonne and then restrict supply to support the market for the short term.

Instead, the majors have decided to go to war with Indian suppliers, Chinese domestic production, Gina Rinehart, Fortescue Metals Group (ASX:FMG) – specifically Twiggy Forrest, and others. They’ve decided to play a five-year game in iron ore, and much like an airline price war, they have decided to offer all the ore they can sell at whatever price they can get.

While this war is costing them short-term margin, they are still making buckets of money and will continue to make buckets of money at current prices. Once they bankrupt or take control of the weaker part of the cost curve, they will make even more money. Having watched HBO’s The Wire, at least this war is not costing them street corners and lives.

The major mining companies are doing five-year planning for a five-year cycle, and while the current market is hellish, they are looking forward to a bright future.

Imagine if FMG is swallowed by either Rio Tinto Group (NYSE:RTP), ArcelorMittal (NYSE:MT),  or BHP Billiton (NYSE:BBL), and that 150 million tonnes a year of other supply went offline and did not come back online. Imagine if the price of iron ore was stable at $90-95 per tonne with the oligopoly controlling the marginal supply.

The thing about the marginal suppliers is that while their marginal cost is $50 or $60 per tonne, that assumes they stay in production. If they stop and have to restart, they will need $100 per tonne to justify restarting.

At some point, debt covenants will be triggered and the weak will fall. The oligopoly knows exactly what that point is. In the meantime, smart people are buying VALE (NYSE:VALE) or other majors and are waiting.

Personally, I no longer have any skin in the iron ore game, but I would not bet against the oligopoly, and I would not be so sure that these short-term prices are going to be the new normal.

Benjamin Cox was the CEO of an iron ore holding company called Roche Bay plc from 2001 to the first part of 2015. Talk about the markets with him and other investors in real-time at CEO.CA chat – the investment conference in your pocket.