Iron Ore Prices

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Iron ore price plunges over 5%

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No need to be so pessimistic still way above the mid US$40 lows... just a correction of the recent rebounds...

Fundamentally, overall demand still weak...

Global commodities demand still weak especially after speculative trades have been unwind in anticipation of the normalisation of global monetary policies.

Iron ore price plunges over 5%

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Jul 8 2015 at 11:45 PM Updated 1 hr ago
Chinese share traders appear to be driving iron ore prices down

Fund managers questioned again the sustainability of second-tier iron ore players. Bloomberg
by Vesna Poljak Matthew Smith
It looks like China just crashed the iron ore market.

Professional investors have been struck by the recent close correlation between the Shanghai stock index and the spot iron ore price. Since mid-June, the Shanghai index has fallen 28 per cent and the iron ore price is down 25 per cent.

Iron ore is back at less than $US50 a tonne and oil is closing in on similar levels. The consequences could be profound. Iron ore is Australia's biggest physical export and one of the most important revenue sources for the federal government.

Fund managers are questioning if Australia's second-tier iron ore miners can survive and whether cost-cutting will be sustainable, or even enough, to keep their production profitable.

As iron ore fell for the ninth-straight session and the dollar greeted the opening of London trading on Wednesday evening with a US73¢ handle, the S&P/ASX 200 Index fell 111 points to 5469.50. In Hong Kong shares had the worst sell-off since the global financial crisis.

Iron ore has been trading in the spot market only since 2010 and the drivers of the price aren't well understood. With Greece concerns pushed aside for now the blame on recent falls is clearly on China.

"What we are witnessing is a decline in confidence on the demand side, driven by the correcting Chinese bourse," Perth fund manager Romano Sala Tenna, from Katana Asset Management, said.

SAVAGE SELL-OFF

Faced with a savage sell-off, iron ore buyers in the spot market were behaving a lot like share traders, Tenna said.

"There has been a clear and pronounced correlation between the Shanghai Composite and the iron ore price," he said.

Other commodities are also having their "China moment", including copper and oil. Oil determines the price of liquified natural gas, which will soon be one of Australia's bigger exports. As authorities in the world's second-biggest economy scramble to avert a historic crash, there will be no state bailout for commodities. Prices will depend on investors' judgment as to whether the underlying economy in China has changed.

As with almost everything in China, this sell-off might really be different. Platinum Asset Management chief investment officer Andrew Clifford said the economic significance of the sharemarket crash was being overplayed. A sharemarket correction can betray worrying signals about the true health of an economy. Not so in China, he argued.

"The reality is the Chinese stock market does not play the same central role in financing the economy as equity markets in other parts of the world because equities don't form as large a part of household balance sheets," he said.

He was more critical of the way Chinese authorities tried to staunch the sell-off and said this intensified the chaos. "If you have someone coming in as a buyer like that, ultimately you're going to encourage people to sell to you," he said.

"I think they've been quite counterproductive in terms of their own rescue fund or pushing the brokers to put their own rescue fund together. I think that's what's caused the most extraordinary events of the last two days."

CHANGING DEMANDS

As for iron ore, Mr Clifford was still cool on the outlook for the commodity, pointing to China's changing demands.

"It is a market economy where market forces move from one area to the other very quickly," he said. "The steel intensity of that economic growth is changing. Markets like iron ore where supply is coming to meet that demand, it's doubtful you'll see a recovery there."

Glenn Hart, co-head of equities at Melbourne-based Antares, said he was not in the business of forecasting Chinese growth but it was apparent that a market that doubled was now giving back some of those gains.

"On the way up, I don't remember too many people saying 'global growth is going to go through the roof'," he said. "The Chinese sharemarket ran up well over 100 per cent over the course of two years. It's given up half of that now ... That's not disastrous."

In the meantime, he does not think the economy in China has changed that much. The same cannot be said for Australia, where the terms of trade look vulnerable again from low iron ore prices.

Treasurer Joe Hockey admitted in April that the prospect of a $US35 a tonne price was something the government was contemplating, emphasising the urgency for fiscal repair. Iron ore never got there after his well-timed statement.

The drop in the dollar is providing some cushion at least, after the Reserve Bank of Australia foreshadowed further currency depreciation in its July monetary policy decision on Tuesday. Westpac's chief currency strategist Robert Rennie said it was not falling fast enough.

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Iron ore hit by historic collapse
BUSINESS SPECTATOR JULY 09, 2015 6:34AM

Daniel Palmer

North American correspondent
New York
Iron ore has endured one of its worst sessions on record, with a fresh 11 per cent plunge taking its price to a 10-year low.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US44.10 a tonne, down 11.3 per cent from its prior close of $US49.70 a tonne.

Over the past five sessions unprecedented losses of 5.3, 3, 3.9, 4.4 and 11.3 per cent have been recorded, leading it down 25 per cent from $US58.90 a tonne through this period.

The current price is a record low since The Steel Index began releasing its data in 2008 and the lowest mark seen since 2005, when miners used to set yearly benchmark contracts with Chinese steelmakers.

In April the commodity fell as low as $US46.70 a tonne, but many hoped that would prove the floor price in the ongoing bear market, given a strong recovery back to $US65 a tonne through May and June.

However, the last month has seen an array of red signals rear their head, and the commodity enjoying just one positive session since June 12.

Chief among the current concerns is the health of China’s markets and broader economy, given its dominant position as the world’s largest consumer of iron ore.

China’s benchmark Shanghai stock index closed down 5.9 per cent yesterday, taking it to a three-month low after losing around a third of its value since a high was hit in mid-June.

“China’s stock market rout is now spreading to other financial markets, creating a sweeping sense of panic and liquidity crunch,” Zheng Ge, an analyst at Wanda Futures, said.

Iron ore has copped the brunt of the selling beyond Chinese stocks, though nickel and copper have also been especially hard hit.

“Fears about the risks to financial stability and the wider economy have contributed to negative sentiment toward commodities,” analysts from Capital Economics added in a research note.

Persistent downgrades from analysts have added to the weak sentiment, alongside rising supply out of Brazil and Australia and slumping oil prices, which lowers the price at which tonnes will likely come out of the market.

Port stockpiles in China have also risen for the first time since April over the past week, furthering concerns about a growing oversupply through the remainder of the year as Chinese steel demand slumps.

At current prices the only miners that are likely trading in the black are the so-called “big three” of the sector: Vale, Rio Tinto and BHP Billiton.

The likes of BC Iron, Mt Gibson Iron and Atlas Iron will all likely be operating in the red should prices stay at $US44.10, while Fortescue Metals will currently be marginal at best as it pursues a goal of reducing its break-even price to $US39 a tonne next year.

A falling Australian dollar has helped offset the pain, but its 5 per cent retreat over the past week has not been enough to cover the 25 per cent drop in ore prices.

The news may also frustrate Atlas’s push to raise $180 million and while its boss remained confident yesterday of an overbid on the deal, the iron ore price slump of over 15 per cent since will likely challenge that optimism.

In local trade yesterday, Fortescue share prices hit a six-year nadir after giving up over 6 per cent, while BC Iron sunk over 8 per cent and Mt Gibson retreated 7.5 per cent.

“Anything with a four in front of the iron ore price ... does make us pretty nervous but we have to work to where the price is,” BC Iron chairman Tony Kiernan told the ABC.

“If it was to remain this way for the next couple of months, it would be pretty challenging to say the least.”

Local giants BHP and Rio both yielded just over 3 per cent in Australian trade yesterday.

Falls were more sedate in London trade, with BHP sliding 1.5 per cent and Rio inching down 0.3 per cent, though both underperformed a 1 per cent lift in the FTSE 100.

Business Spectator

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Iron ore miners brace for more volatility
THE AUSTRALIAN JULY 10, 2015 12:00AM

Iron ore miners brace for volatilityFortescue Metals was the biggest winner with a 6.6 per cent jump to $1.785. Source: Supplied
A head-spinning 24 hours in iron ore may only be the start, with investors warned to expect more volatility in the market for Australia’s biggest export.

An early morning panic in response to an unprecedented plunge in the iron ore price yesterday transformed into a surprise rally for Australian iron ore miners as Chinese markets rebounded.

Yesterday had been shaping up as a bloody day for Australia’s iron ore sector following an 11 per cent plunge in the spot iron ore price to just $US44.10 a tonne. Both the closing price and the scale of the fall were the worst seen since the introduction of spot prices in 2009.

But a rally in Chinese markets and a rise in iron ore futures helped Australia’s miners not only recover early losses but, in many cases, close the day higher.

Fortescue Metals Group, having hit a six-year low earlier this week, was the biggest winner with a 6.6 per cent jump to $1.785.

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Iron ore giants BHP Billiton and Rio Tinto gained 1.8 per cent and 1.7 per cent respectively, while junior producer BC Iron gained 1.8 per cent.

Wood Mackenzie iron ore analyst Andrew Hodge told The Australian that the moves this week were similar to the “snowball effect” in May that saw prices fall “further than we thought was sustainable”.

“Similarly there have been some indications of weak demand, which is normally expected at this time, and this could be what’s driving the underlying weakening sentiment to produce another snowball effect,” he said.

Iron ore prices have been falling in recent weeks on the back of data showing a jump in exports from Australia and a rise in iron ore stockpiles at Chinese ports.

The falling price increased pressure on the Australian iron ore sector, which has already gone to great lengths to cut costs and improve efficiencies.

Smaller producers such as BC Iron and Mount Gibson will be losing money at current prices while Atlas Iron has used hedging and other forward-sale mechanisms to try to insulate it from the fall.

Fortescue chief financial officer Stephen Pearce said the company was still “very well placed for the future”. “We have previously guided a cash cost of production of $US18 (a tonne) for FY16, putting us firmly in the same part of the cost curve as our largest competitors,” Mr Pearce said.

“We are making a profit on every tonne that we produce and our cost performance is sustainable.”

The volatility has come at a particularly sensitive time for smaller producer Atlas Iron, with Atlas managing director David Flanagan trying to raise up to $180 million from investors to strengthen its balance sheet and reduce its debt burden.

The company’s 5c a share offer closes for existing Atlas shareholders today, with institutional investors having until next Friday to make their applications.

EIM Capital fund manager John Robertson said the efforts by Australian miners to cut their production costs over the past year had only helped the iron ore price go even lower.

“Flanagan (of Atlas) has done an outstanding job getting his costs down to $50 a tonne, which not long ago you would have thought was more than enough to keep his head above water, but you look at the last couple of days and think, ‘Crikey, now he’s got to do it again’,” Mr Robertson said.

He said sentiment out of China would continue to weigh on what was a “very volatile environment” for iron ore.

While China’s government-driven growth of the past decade was behind the mining boom, the mixed success of the Chinese authorities in trying to arrest the slide of its stockmarkets this week showed their inability to control the direction of its economy.

That in turn could be bad news for commodity producers that are heavily reliant on Chinese growth and investment to drive consumption. “We’re starting to see a relative impotence on the behalf of Chinese authorities in that they no longer have the ability to command markets like they did,” Mr Robertson said.

“That filters through to how much power they have elsewhere and whether they can sustain economic growth and generate investment like they have in the past. The answer is probably not, so that leads to inferences about demand for raw materials and overall growth rates.”

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Iron ore price leaps 4pc
BUSINESS SPECTATOR JULY 21, 2015 6:38AM

Daniel Palmer

North American correspondent
New York
The price of iron ore has surged clear of the $US50 mark in offshore trade, climbing almost 4 per cent as its recovery from a 10-year low continues apace.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US51.90 a tonne, up 3.8 per cent from $US50.00 a tonne.

The commodity has risen almost 18 per cent in less than two weeks after it struck a 10-year low of $US44.10 a tonne as panic briefly set in on a temporary collapse on the Shanghai stock market.

There has been no single catalyst for the recovery, with half of the gains coming in the first day after the 10-year trough was reached — a sign traders saw the fall as an overreaction.

However, more sedate action on the Shanghai exchange and signs leading producer Vale may be willing to trim production have aided the rebound.

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The jump clear of $US50 a tonne will be welcomed by the sector as most mid-tier and junior miners are marginal, at best, below $US50 a tonne, with Vale, Rio Tinto and BHP Billiton the only able to turn a significant profit at such levels.

The development comes after Atlas Iron yesterday revealed it had raised $86 million by issuing new shares, well short of its $180m target as investors shied away amid the recent pressure on ore prices.

The embattled group almost went under in April but was able to secure a deal with creditors that has seen its three mines restart operations.

Business Spectator

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Iron ore price rises 6pc, clears $US55
BUSINESS SPECTATOR JULY 30, 2015 7:47AM

Daniel Palmer

North American correspondent
New York

Miners are enjoying some respite from beaten-down iron ore prices, with the commodity rising for a fourth straight session overnight.

A 6 per cent surge in its price brings the four-day rally to around 10 per cent, as steel prices rise and exports from Australia temporarily cool.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US55.30 a tonne, up 5.9 per cent from $US52.20 a tonne in the prior session.

It leaves the commodity 25 per cent higher than the 10-year low of $US44.10 a tonne it struck just three weeks’ ago.

Driving the rebound has been news of lacklustre Australian exports.

“Since the start of the month, exports have been particularly disappointing in Australia, where scheduled maintenance at some terminals appears to be affecting shipments,” Goldman Sachs’ Christian Lelong wrote in a note on Tuesday.

“Stock levels may start to grow modestly in the months ahead as supply growth accelerates once again but ... this is likely to come at the expense of further price declines.”

The commodity has also been aided by greater stability on the Chinese stock market in the last 24-48 hours, after an 8.5 per cent collapse on Monday had many fearful market turbulence could be a harbinger of a downturn in the world’s second largest economy.

An uptick in steel prices has further stirred the positive sentiment, though analysts remain sceptical given expectations for a further surge in supply over the next year as Gina Rinehart’s Roy Hill mine enters production and Rio Tinto, Vale and BHP Billiton ramp up supply.

Many investment banks retain forecasts in the $US30s and $US40s.

The rally has boosted the stock market fortunes of local giants BHP, Rio Tinto and Fortescue Metals, with the latter soaring 7.4 per cent yesterday.

Meanwhile, BHP and Rio both added 2 per cent in London trade overnight.

Business Spectator

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China steel exports to continue to drag on prices, Nippon says
Date
August 7, 2015 - 4:00AM

China's steel association said last month 43 per cent of its members lost money in the first half of this year. Photo: Reuters

Nippon Steel & Sumitomo Metal, the world's No.2 steelmaker by output, sees no recovery in Asia's sagging steel prices at least until April as exports by top producer China will continue to weigh on the market, a senior executive said.

The global steel industry has been battered by massive exports of cheap steel from China, where an economic slowdown has curtailed domestic use of the metal.

"I don't expect to see a recovery in Asia's steel product prices at least during the October-March second half (of the fiscal year)," executive vice president Katsuhiko Ota told Reuters in an interview this week.

Still, Japanese steelmakers have held up better than some rivals abroad as a weaker yen spurs the country's auto makers to shift some production back home.

Nippon Steel said last week its recurring profit - pre-tax before one-off items - rose 14 per cent in the April-June quarter from a year ago as lower raw material costs boosted margins, still forecasting an 18 per cent drop in annual profit.

In contrast, many mills in the region are losing money.

"About half of Chinese mills apparently are making losses, but they are not stopping production," Ota said.

China's steel association said last month 43 per cent of its members lost money in the first half of this year, with the sector as a whole struggling with plummeting demand and local prices at 20-year lows.

"We don't expect an improvement any time soon as the Chinese government is trying to promote exports, rather than stopping or slashing overcapacity," Ota said.

As a result, Nippon Steel, which exports nearly half of its production, expects no major recovery in its export margin by March, he said.

Ota was more bullish on his company's home market.

"Domestic demand will pick up in the October to March half on higher vehicle output, increased orders of public works and a recovery of capital expenditure by the private sector," he said.

Ota was also optimistic about Nippon Steel's own businesses in China, where it has about 30 joint ventures, including Baosteel-NSSMC Automotive Steel Sheets (BNA), which makes automotive flat steel and galvanised steel sheet.

"Unless China's car production and sales fall sharply, our business will not be affected that much," he said, citing little competition to its high-end galvanised steel sheet.

Ota was concerned, however, that moves by US counterparts seeking antidumping actions against China and other countries over cheap exports of corrosion-resistant steel as well as cold-rolled steel could end in import duties.

And any import duties imposed in the United States could force Chinese steelmakers to ship more products to an already-swamped Asia, he said.

Chinese steel prices hit their lowest in more than 20 years last month as demand in the world's top producer wanes, industry data shows.

Rebar on the Shanghai Futures Exchange hit 1,951 yuan ($US314) a tonne last month, lowest since the contract's launch in 2009. It has lost nearly 25 per cent so far this year.

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Cheap Australian iron ore feeding China steel glut 'like a bad virus'
DateAugust 21, 2015 - 5:55AM

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Rio and BHP Billiton have come under criticism both locally and abroad for expanding output into an oversupplied market.

Steel exports from China will surge to more than 100 million metric tons this year as local mills benefit from cheap iron ore to produce more than Asia's top economy needs, according to Cliffs Natural Resources.
"It's like a bad virus," Lourenco Goncalves, chief executive officer of the largest US iron-ore producer, said in a phone interview from the company's headquarters in Cleveland. "Australia continues to give iron ore to China almost for free, allowing them to produce more than they need."
Shipments from the biggest producer are headed for a record this year as slowing local demand prompts mills to seek overseas buyers, driving down prices and spurring trade tensions from the US to India. At the same time, the largest iron-ore miners including Australia's Rio Tinto Group are boosting output to expand sales. China's steel shipments were called extraordinary by Credit Suisse Group, which said last month they were now in line with total output from Japan, the No. 2 producer.

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Shipments of steel from China surged 9.5 per cent to 9.73 million tons in July, according to customs data. Photo: Reuters

"What China is exporting alone is bigger than the second-biggest producer of steel in the world: it is crazy," Goncalves said on Wednesday. "With the massive sales of iron ore to China - enabling China to produce a lot more than China actually needs for consumption - there's a glut of exports."
Shipments of steel from China surged 9.5 per cent to 9.73 million tons in July, according to customs data. In the first seven months, exports rose 27 per cent to 62.13 million tons, the highest ever for the period, data compiled by Bloomberg show.
Exports from China are forecast to expand 21 per cent to 111 million tons in 2015, according to a projection from Colin Hamilton, head of commodities research at Macquarie Group. That compares with 53 million tons in 2013.
"The difficult condition in the Chinese steel market is the main driver for the export gains," said Anurag Soin, an analyst at Australia & New Zealand Banking Group. Still, the iron-ore miners' focus on market share at the expense of price has given Chinese mills a cheap avenue to overproduce, he said.
Cliffs also owns iron-ore mines in Australia that Goncalves is seeking to sell. He took the helm in 2014 after an activist-investor revolt, promising to end Cliffs' vulnerability to the oversupplied seaborne market. Cliffs' stock fell 80 per cent in the past 12 months as iron and steel prices tumbled.
Rio and BHP Billiton have defended their policy of expanding output into an oversupplied market. Rio's Sam Walsh said in February if it cut output, forfeited supply would be made up by rivals. Alan Chirgwin, iron-ore marketing vice president at BHP, said in May the miner's strategy was rational.
Iron ore with 62 per cent content delivered to Qingdao fell 1 per cent to $US55.84 a dry ton on Thursday, according to Metal Bulletin Ltd. While prices rose 25 per cent since bottoming at $US44.59 on July 8, a record in data going back to 2009, they're still down 22 per cent this year. In 2014, they lost 47 per cent.
"Everyone is complaining about Chinese steel exports," Wang Yingsheng, deputy secretary-general of the China Iron & Steel Association, said in an interview. While the volume of shipments shows the good appetite from foreign clients, it also indicates overcapacity and weakening demand in China, Wang said.
Bloomberg

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• Oct 13 2015 at 5:15 PM 
   
  

China's iron ore imports surge, but trouble ahead

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NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/k/8/4/9/f/image.related.afrArticleLead.620x350.gk7y9o.png/1444720256593.jpg[/img]"It appears government spending has come back online." Dave Tacon
by Angus Grigg
A late year spike in infrastructure investment has stabilised China's imports of iron ore, even as the economy slows and the country's overall trade performance remains patchy.
The China Customs Bureau said on Tuesday iron ore imports surged 16.2 per cent to 86.1 million tonnes in September from a month earlier, notching up their best monthly performance in nearly two years. For the first nine months of the year import volumes were flat.
This is weak by historical standards, but far better than earlier forecasts that China's iron ore import volumes could fall as much as 10 per cent this year.
Such a scenario would deal a double blow to Australia's federal budget, which is already suffering from a halving of iron ore prices this year. Australia supplies nearly two thirds of China's imported iron ore.

China's imports of coal are not holding up as well as the iron ore with volumes falling 30 per cent over the first nine months of the year.
Julian Evans-Prichard from Capital Economics attributed the spike in iron ore imports to the faster roll-out of government-backed projects.
"It appears government spending has come back online. After a weak start to the year for infrastructure projects there has been a big comeback," he said via phone from Singapore.
In September the National Development and Reform Commission said it approved 880 billion yuan ($190 billion) of projects spanning high speed rail, road and other transport projects.


The stronger than expected iron ore volumes were helped by another record month of steel exports for China. In September China exported 11.25 million tonnes of steel products, a 16 per cent increase on the previous month and 32 per cent higher than last year.
China's surging steel exports remain a controversial topic, as the European Union and others accuse Beijing of subsidising loss-making production and dumping steel on world markets.
Xu Xiangchun, chief information officer at MySteel, cautioned China's overall demand for iron ore was declining. He said lower cost imports were continuing to displace high-priced domestic iron ore production.
"Next year I expect to see a decline in the volume of iron ore imports," he said via phone from Beijing. "Iron ore demand has been stabilised partly due to government infrastructure projects."

China's overall steel production is set to fall by around 2 per cent this year.
Strong steel sales abroad helped China post better than expected exports figures for September.
The Customs Bureau said exports were down 1.1 per cent over the month, compared to forecasts of a 7 per cent decline. Imports were weaker than expected however, declining 17.7 per cent in September from a year earlier.
It was the third month in a row where Chinese exports were negative and the 11th month in row for imports.

That meant China reported its largest ever trade surplus of 376.2 billion yuan ($82 billion) in September.
Falling commodity prices are the main reason for the poor performance of China's imports and Mr Evans-Prichard believes the underlying data is not as weak as the headline numbers suggest.
"If you just look at the headline figures then imports are very weak, but much of that is price related. Actual imports volumes have been pretty strong over recent months," he said. "That means imports are not a good gauge of domestic demand because prices have fallen so much."
The mixed trade data comes ahead of China's third quarter GDP being released on Monday. The median forecast of 13 economists surveyed by the Wall Street Journal is for growth of 6.8 per cent.
This would be the slowest pace of quarterly growth since the 6.1 per cent recorded in first quarter of 2009, when China was hit hard by the Global Financial Crisis. China recorded growth of 7 per cent in the second quarter after an annual rate of 7.4 per cent in 2014.
"China's economic situation generally worsened in the third quarter, as production and investment slowed," Mizuho economists said in a note to clients.