Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
BHP wary on iron ore prices
Daniel Palmer
[Image: daniel_palmer.png]
North American correspondent
New York
[b]The head of marketing at BHP Billiton has warned recent cuts to global production will do little to raise commodity prices as an early October iron ore rally comes to an abrupt halt.[/b]
“For me it is a normal rational economic decision,” Arnoud Balhuizen told journalists in London overnight, according to several reports. “If you have a cash negative operation you shut it and that doesn’t do anything for price. It shouldn’t be (in operation).”
Mr Balhuizen was particularly cautious on the prospects for iron ore as the key Australian export fails to extend a recent rally above $US55 a tonne.
“By the end of this year, there will be additional iron ore coming from Australia, from Brazil,” he noted.
“Our expectation is that the iron ore market cost curve will continue to flatten and continue to come under pressure.”
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US54.30 a tonne, down 1.1 per cent from $US54.90 a tonne in the prior session.
The commodity has now lost almost 3 per cent in two days on the back of a four-day winning streak that had been driven by hopes for persistently low US interest rates and Chinese stimulus.
However, weak trade data out of Beijing on Tuesday and soft inflation numbers in China yesterday have raised fresh concerns about the economy of the world’s largest iron ore consumer.
Business Spectator
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Xi Jinping hits back at steel dumping claims
- AFP
- OCTOBER 22, 2015 8:34AM
[b]China’s President Xi Jinping has responded to accusations that China has pushed down global steel prices during a visit to London that has coincided with a wave of job cuts in the sector in Britain.[/b]
“The world is facing an overcapacity of iron and steel, not just the UK, this is because of the impact of the global financial crisis,” Mr Xi said at a joint press conference with British Prime Minister David Cameron, speaking through a translator.
“China has taken a series of steps to reduce the capacity. We have reduced more than 700 million tonnes of production capacity and you can just imagine our task to find jobs for those workers.”
Mr Cameron is facing pressure from the opposition Labour Party and trade unions to do more to help the ailing industry, a day after one leading company, Tata Steel, put the blame on “a flood of cheap imports particularly from China”.
Start of sidebar. Skip to end of sidebar.
End of sidebar. Return to start of sidebar.
Shortly after facing a string of questions on the issue in the House of Commons, Cameron raised the issue during two hours of talks with Mr Xi at Downing Street, telling reporters afterwards that the two leaders had discussed the issue of “global oversupply”.
Mr Cameron’s spokeswoman said he had “made clear there were challenges” but would not say whether he had used the phrase “dumping” during the discussion.
The British job losses have been blamed by experts on a range of factors including cheap Chinese imports but also high energy costs in Britain.
On Tuesday, the first day of Xi’s visit, Tata Steel announced plans to cut 1200 jobs in Britain.
This followed the recent loss of 2200 jobs when the owners of the SSI steelworks in northeast England went into liquidation, while another firm, Caparo, went into administration on Tuesday. China’s economy is slowing down and this week recorded its slowest growth for six years for third quarter gross domestic product.
The country has a huge surplus of steel and the chairman of industry giant Baosteel Group said production could eventually shrink 20 per cent, according to Bloomberg News.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Goldman sees significant 'downside' risk for iron ore
NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/i/a/j/t/g/image.related.afrArticleLead.620x350.gkk6w7.png/1445980927672.jpg[/img]"The iron ore price has got significant downside risk from here," said Katie Hudson, managing director at Goldman Sachs Asset Management Australia. Bloomberg
by Jasmine Ng and David Stringer
Iron ore is sinking back toward $US50 a metric ton as expanding low-cost supply and sputtering demand in China spur concern a global glut will persist into 2016, with Goldman Sachs frecasting significant losses.
"It's going down significantly," Katie Hudson, managing director and senior investment manager at Goldman Sachs Asset Management Australia, said in an interview on Tuesday. "The major producers are adding incremental volume at around $US20 a ton, that gives you a sense of where the vulnerability is."
Ore with 62 per cent content delivered to the Chinese port of Qingdao rose for the first time in seven days, adding 0.9 per cent to $US51.50 a dry ton on Tuesday after falling to $US51.03 Monday, the lowest since July 16, according to Metal Bulletin Ltd. The raw material - which bottomed at $US44.59 on July 8, a record in daily price data dating back to 2009 - is set for the first monthly loss since July.
The renewed decline shows the global market has yet to reach a balance as the biggest miners boost cheap output while steel consumption contracts in China. Rio Tinto Group and Vale reported increases in quarterly supply this month as data from China showed slowing economic growth and a further drop in steel production. With many mills in China losing money as steel prices languish, Shanghai Baosteel chairman Xu Lejiang has forecast nationwide output may eventually slump 20 per cent.
[img=620x0]http://www.afr.com/content/dam/images/g/k/k/6/w/u/image.imgtype.afrArticleInline.620x0.png/1445980997055.jpg[/img]Iron ore is heading to its first monthly loss since July.
"We have a more cautious view on the iron ore price today that reflects both our concern about increasing supply and what we see as a more modest demand environment," Hudson said in Melbourne, adding that the bank forecasts prices below $US50 on a long-term view. "The iron ore price has got significant downside risk from here."
While benchmark prices have held between $US50 and $US60 since July 10, supported by low port stockpiles in China, Westpac said this month that the $US10 range would probably give way before year-end. Citigroup has said prices will drop below $US40 in the first half of 2016 as supply jumps while steel output contracts.
Crude-steel output in China, which accounts for half of global production, shrank 3 per cent to 66.12 million tons in September on-year as local demand fell. Shanghai Baosteel's Xu told reporters in Shanghai last week that the contraction in China's production would eventually match the experience seen in the US, Europe and elsewhere.
Iron ore's recent drop comes even as policy makers in China introduced a measures to stabilise growth. The central bank announced further cuts to the benchmark lending rate and banks' reserve requirements on Friday. Leaders gather this week to map out a five-year plan for the world's No. 2 economy.
The biggest producers are still adding output, seeking to lower costs per ton, expand sales and take market share from less efficient rivals. BHP Billiton, the world's largest mining company, said October 21 iron ore output rose 7 per cent to 61.3 million tons in the three months to September 30, two days after Brazil's Vale said it produced a record 88.2 million tons in the period. Rio reported third-quarter output rose 12 per cent.
The weak price is not eliciting a response "in terms of delaying supply - in fact, if anything it is accelerating supply- and it's had no impact on demand despite the price halving", Hudson said. Goldman Sachs Asset Management Australia is underweight the iron ore sector, she said.
Fortescue Metals forecast that it will cut its cash costs below $US15 a wet ton in the three months to June 30, CEO Nev Power said in a statement on Tuesday. Australia's third-largest shipper reduced first-quarter production costs 24 per cent, it said this month.
Holdings at ports in China, tracked as one gauge of demand, have started expanding again. The stockpiles rose 0.9 per cent to 83.95 million tons on October 23, the highest level since May, according to data from Shanghai Steelhome Information Technology Co.
Bloomberg
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Iron ore price dives below $US50
Daniel Palmer
[Image: daniel_palmer.png]
North American correspondent
New York
[b]The price of iron ore has tumbled below the key psychological threshold of $US50 a tonne as Chinese steel mills warn on slumping demand.[/b]
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US49.50 a tonne, down 2.6 per cent from its prior close of $US50.80 a tonne.
The commodity is trading at its lowest mark since mid-July having not enjoyed a positive session for more than two weeks.
The recent weakness has been driven by a multitude of factors, including signs of persistent output from suppliers, worries about sliding demand growth in China and softening oil prices.
The latest blow came in the form of demand worries as the China Iron & Steel Association outlined growing pain in the steel sector.
“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu Jimin, the deputy head of the association, said, according to Bloomberg. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.
“Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” he added.
The commentary does not bode well for iron ore given it is a key steelmaking ingredient.
Analysts have been reiterating dire forecasts in light of the worsening steel outlook, with Goldman Sachs and Westpac recently warning of falls to round off another tumultuous year.
Moody’s followed suit this week in declaring the supply-demand dynamic conducive to further price pain.
“We still fundamentally think there’s excess supply relative to demand,” Carol Cowan, Moody’s senior vice president in New York, told Bloomberg. “Demand is slowing, given the slowing steel-production profile in China, which is a key driver in the seaborne market. New supplies continue to come on, certainly through this year and then to 2016.”
The talk of new supply largely relates to heavyweights BHP Billiton, Vale and Rio Tinto, which are all able to turn a healthy profit at current price levels.
The story is not as clear for Gina Rinehart’s $10 billion Roy Hill project as the giant iron ore project prepares to come online. The impending start of production is seen as another risk factor for iron ore prices, though the firm admitted yesterday that its first shipment may be delayed until December.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
02-11-2015, 05:03 PM
(This post was last modified: 02-11-2015, 05:04 PM by greengiraffe.)
From iron ore to dairy: Chinese miners steel themselves for decline
The steel glut is now forcing China's steel mills to go the same way as small iron ore miners - quietly shutting up shop and looking elsewhere for their future.
NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/g/x/b/4/9/image.related.afrArticleLead.620x350.gklnx9.png/1446450498140.jpg[/img]The milk processor will target jobs across its procurement, finance, human resources, information services and legal departments.
by Lisa Murray and Angus Grigg
As a working example of the shift taking place in China's economy, it's hard to go past Shandong Hualian Mining.
Two weeks ago, the company told investors its focus had shifted from the extraction of iron ore to the raising of dairy cattle.
It's one of the lucky ones, according to Xu Xiangchun from consulting firm MySteel.
He reckons more than half the country's small iron ore miners have been forced out of business since early last year, as they struggle with weak demand and are unable to match the cost advantage of foreign giants, Rio Tinto, BHP Billiton and Vale.
According to figures published by China's customs bureau, imported iron ore shipments increased by 12 per cent in the year to September.
This has provided some insulation to the profits of big miners and indeed Australia's federal budget, as lower prices have been partly offset by rising volumes.
SUPPLY DELUGE
But this volume story is now under threat, with China's steel mills facing the same financial pressure as local iron ore miners.
There is simply too much supply at a time of weak demand as China no longer needs as many new bridges, airports, railways and apartment towers.
And this oversupply of steel is suddenly a global problem, even tarnishing President Xi Jinping's recent state visit to Britain.
Previously, few cared that Chinese mills were losing money on every tonne of steel they produced. Then early last year, they began exporting their overproduction to the world. They became the subject of anti-dumping cases and Beijing was accused of causing job losses from England to South Africa, Australia and the United States.
The figures are stark. At the end of last year, China accounted for less than 10 per cent of the world's gross domestic product but more than half its steel output.
Add to this greater environmental pressure at home and Beijing's global commitments to curb greenhouse gas emissions and that's why many significant voices are now saying China's steel production peaked last year at about 820 million tonnes and is set for big falls over the next decade.
The loudest voice is the Chinese government itself. Its chief forecaster, Li Xinchuang, president of the China Metallurgical Industry Planning Association, believes Chinese steel consumption will fall 20 per cent over the next 15 years.
He won't provide a forecast for production, which includes exports, but the chairman of Bao Steel, Xu Lejiang, recently said it would also fall about 20 per cent in line with the experience in other parts of the world.
"If we extrapolate the previous experience in Europe, the United States and Japan, their steel sectors have all gone through painful restructuring in the past with steel output contracting by about 20 per cent," he said, without providing a time-frame.
For Australia, which supplies two-thirds of China's imported iron ore that can only mean one thing – less demand for the key steel-making commodity.
The "contraction" forecast by Xu has already begun.
In the first nine months of the year China's steel production fell 2.1 per cent, while consumption fell by 5.8 per cent, according to government figures released last week. That was the sharpest decline in consumption in three decades.
The declining output is a function of financial, environmental and geopolitical pressure. The latter was brought into focus last month, when Xi made his first visit to Britain as President.
While he was travelling in a royal carriage down the Mall to Buckingham Palace, Indian steel giant Tata said it was sacking 1200 British workers, due to the flood of cheap imports, particularly from China.
SURVIVAL STRUGGLE
Tata's announcement was timed for maximum impact and it didn't pull any punches. The company's European chief, Karl Kohler, said Britain's steel industry was "struggling for survival" and the EU needed to do "much more to deal with unfairly traded imports".
Suddenly, Prime Minister David Cameron was under attack as the opposition pointed out any jobs created via the investment deals signed during Xi's visit would be more than wiped out by losses in the steel sector.
Since then the story has gone global with Arcelor Mittal in South Africa saying it will have to lay off half its 13,500 employees unless import duties are imposed on cheap Chinese steel.
It's a similar story in Australia.
The country's biggest steelmaker, BlueScope, has been forced to slash jobs and cut production to stay afloat. But this was still insufficient to keep its blast furnaces running, without support. Earlier this month, the NSW government extended tax concessions.
Such domestic political pressures the world over is likely to see China's steel exports peak this year at about 90 million tonnes, according to JP Morgan.
The surge in exports, which are up nearly 30 per cent this year, has cushioned the slow-down in China's domestic consumption of steel, but this trend is not sustainable and pressure is mounting to shut down production at home as losses mount.
China biggest steel makers lost 55.3 billion yuan ($12 billion) in first nine months of the year compared with a profit of 19.3 billion yuan during the same period last year.
Zhu Jimin, vice-president of the China Iron and Steel Association, said recently the only way to stem the mounting losses of the local steel industry was to control supply.
"It's very hard to control the problems of overcapacity by increasing demand," he said.
"To control production is the key to solve the problems in China's steel sector."
This is already being done through a combination of environmental controls and financial pressure, via state-owned banks refusing to continue funding loss-making mills.
Just last week, the state-owned Hangzhou Steel said it would be shutting the last of its blast furnaces by year's end.
The 58-year-old mill was producing 4 million tonnes of steel at its peak, which is only slightly less than Australia's entire production.
Overall, China claims to have reduced its steel-making capacity by 78 million tonnes, but analysts believe it still has excess capacity in excess of 300 million tonnes.
In an effort to soak this up, China's government is rolling out the "one belt, one road" strategy, which is aimed at creating better transport and infrastructure links with Central Asia and Europe via a series of multibillion-dollar investments in road, rail and pipelines. Some economists have characterised this is an attempt to export China's industrial overcapacity. While this might work in less-developed provinces which will be key links in the network, its impact will be limited by transport and logistics as many of the infrastructure projects will be outside China. Countries in central Asia also don't have the population density to support the size and scale of projects needed to soak up all of China's excess steel.
MORE CLOSURES
That means there will be more mill closures.
And there will be more local iron ore miners looking for a shift in business strategy.
China's domestic iron ore production fell 9 per cent in the first three quarters of this year, according to the National Bureau of Statistics. That compared with a 4 per cent increase in 2014 and double-digit increases for the previous two years.
The average break-even price for local miners is estimated at about $US50 a tonne.
This gloomy outlook left Shandong Hualian with little choice but to accept the offer of a Jilin-based dairy company to use the iron ore miner for a backdoor listing.
In the first half, Shandong Hualian reported a loss of 17.7 million yuan down from a profit of 131 million yuan in the first six months of 2014.
The company said its loss was caused by the ramp-up in production of the big offshore resources players and weak demand as China's economic focus moves away from manufacturing to the services sector.
At the company's investor conference two weeks ago, its new major shareholder, Cai Xiu, kept it simple.
"The company is now going to focus its development on the dairy sector."
with Lucy Gao
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
‘Steel tsar’ Shen Wenrong hoses down BHP, Rio’s bullish China outlook
[Image: 893989-f6ca3562-876f-11e5-8b46-8e342e83f9ff.jpg]
Iron ore price Source: TheAustralian
[b]One of China’s most powerful steel barons has cast doubts on BHP Billiton and Rio Tinto’s bullish forecasts for the country’s steel production, saying there is little chance China will produce more than one billion tonnes of steel within the next five to 10 years.[/b]
And in comments that could have dire consequences for the share prices of the miners, he also undercut their optimistic outlook on iron ore prices.
Dubbed the “steel tsar”, Shen Wenrong is chairman of Shagang group, the country’s largest privately owned steel company, and the deputy chair of China Iron and Steel Association.
BHP says Chinese steel production is likely to peak at between 935 million and 985 million tonnes in the middle of next decade, while Rio’s most recent forecast suggests China will produce 1 billion tonnes of steel by 2030.
Mr Shen does not share their assessment. “It is impossible for China’s steel production to exceed 1 billion tonnes,” he told The Australian.
“OK, let me rephrase, I should not be so categorical. I think the chance that China’s steel production will exceed 1 billion tonnes within the next five to 10 years is 1 per cent.”
Mr Shen, one of China’s most influential industrialists, says it is almost certain steel production will start to fall.
“There is a good chance that the steel production in the country will drop by at least 10 per cent,” he said. “Current production is about 830 million tonnes a year, and it will fall by 10 per cent within the next decade.”
He believes the country’s steel production should be in a range of 600 million-700 million tonnes.
“I think this level of production would be healthy. Even if its drops to 500 million tonnes, it is still healthy.” He also says the iron ore price is still too high and he expects it to fall further.
“This year’s average price is about $US60 per tonne. Don’t believe this price is too low.
“In fact, it is still elevated. I think the price will fall into the range of $US40-$US45,” he said.
“That is a more reasonable price and it will remain so for a long period of time.”
For years, the Chinese government has been trying, without much success, to curb the country’s ballooning excess capacity in the steel sector. The industry is an important source of revenue for local governments as well as a provider of a large number of jobs.
But this is about to change. The catalyst is the country’s tough new environment laws, which have imposed much tougher standards.
“The new environmental law in China will force the industry to invest more in emission-controlling technology. I think 70-80 per cent of the sector will be able to meet the standard,” Mr Shen said.
According to an industry newspaper, Mr Shen’s Shagang group has invested 6 billion yuan ($1.3bn) in emission-reduction technology so far and plans to invest another 10 billion yuan in the next three to five years.
The Chinese Ministry of Industry and Information Technology estimates the new environmental laws will increase the cost of production for the steel sector by as much as 13 per cent, or about 200 yuan per tonne. “For the 20 per cent of producers who don’t meet the new standard and refuse to invest in the new technology, they will face an existential crisis,” Mr Shen said.
Another big change is Beijing’s plan to consolidate the fragmented industry. At the moment, the top 10 producers are responsible for just 20 per cent of total production. Beijing wants that proportion to be increased to 60 per cent.
Mr Shen said it was unlikely China’s private steel mills would be involved in the restructuring of state-owned companies, which account for about half of the production. “If we can’t have control over the company, I don’t think there is much appetite for investing in government enterprises.”
On the future of China’s economy, Mr Shen is a bit more optimistic. The steel baron believes the country is capable of delivering 6.5 per cent growth over the next five years.
“The absolute size of China’s economy is so big, even if we grow at 5 per cent that is still a lot. We just can’t grow at 9 per cent or 10 per cent anymore,” he said.
Mr Shen was in Australia to attend the inauguration ceremony of the Australia Jiangsu General Chamber of Commerce. He is the chairman of the new organisation.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Fortescue Metals boss warns of darker days for iron ore
Paul Garvey
[Image: paul_garvey.png]
Resources Reporter
Perth
[Image: 370768-81a287b4-884e-11e5-9620-9dfba13face1.jpg]
Forestcue Metals chief Andrew Forrest. Picture: Britta Campion Source: News Corp Australia
[b]Andrew “Twiggy” Forrest, long regarded as arguably the Australian iron ore industry’s most optimistic individual, is now warning of “darker” days ahead for the nation’s biggest export.[/b]
In his first public appearance after almost losing a leg in a hiking accident in Western Australia’s Kimberley region, the Fortescue Metals founder and chairman warned investors “it could well get darker before it gets brighter in the iron ore industry”.
Speaking to reporters after the company’s annual general meeting in Perth, Mr Forrest said he expected the iron ore price to remain below $US50 a tonne.
Overnight, the price held steady at $US47.70 a tonne.
However, Mr Forrest said Fortescue’s plans to lower its production costs to just $US15 a tonne by next June meant the company would remain in front of Brazilian iron ore giant Vale on the cost curve and allow the company to continue paying down debt.
“We think (the iron ore price) will be in the 40s for a period of time, but we’re also putting it out there so that shareholders and senior management of the industry take a dose of reality and say ‘do we want to keep expanding when all we will do is lower the iron ore price and lower our total shareholder returns’,” Mr Forrest said.
Mr Forrest, who has long been a critic of rival Pilbara iron ore heavyweights BHP Billiton and Rio Tinto, used the meeting to renew his attack on the pair over what he said was their role in driving down iron ore prices by continuing to flag increased production. He also said the pair were unable to match the exploration success Fortescue was having in the Pilbara.
“Our competitors are out there with these highfalutin expansion plans but are struggling to find the iron ore, and are having to develop new mines out of effectively working capital because they don’t want to admit … that they’re spending truckloads of capital on new mines just to hold where they are,” Mr Forrest said.
While Fortescue has long been seen as the most marginal of the world’s big four iron ore producers, it has substantially reduced its cost base over the past year through a broad overhaul of its mining methods.
Fortescue’s ability to keep generating cash even amid a low iron ore price was reinforced yesterday, when it announced it would offer to repurchase up to $US750 million ($1.06 billion) in debt from noteholders in the US.
Fortescue is offering the holders up to US93c in the dollar, a slight premium to the levels at which the notes have been trading.
Mr Forrest said he believed Fortescue could overtake Rio Tinto and BHP and become the lowest-cost iron ore producer in the world, given they were burdened by having to carry lower-margin mines in other commodities around the world.
“We haven’t barbecued tens of billions of dollars on overseas acquisitions which we now have to carry and prop up with our iron ore subsidiary,” he said, in reference to the costly acquisitions made by the likes of Rio and BHP during the mining boom.
While all resolutions at the meeting were approved, Fortescue did come close to recording a “first strike” against its remuneration report. Some 19.4 per cent of shares voted against the remuneration report, falling just short of the 25 per cent mark needed to record a strike. Some proxy advisers had recommended against approving the remuneration report, after the weak share price performance by the company during the 2015 financial year.
Mr Forrest spent the meeting on crutches, the legacy of what he said was a “quite severe” hiking accident. “It’s been a character-building experience. I’m lucky to be standing on two legs,” he said. “I feel grateful. I think I got off lightly. Some forced rest and recovery has been wonderful thinking time.”
The benchmark iron ore price slipped below $US50 a tonne last month and is now around $US48 a tonne. Fortescue shares closed up 3 per cent at $2.37 yesterday.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Iron ore prices at 10-year low as China demand outlook dims
Matt Chambers
[Image: matthew_chambers.png]
Resources Reporter
Melbourne
[Image: 615395-4697b7b4-8f62-11e5-81cc-452cd1fd5dbf.jpg]
Iron ore Source: TheAustralian
[b]Iron ore prices have tumbled close to 10-year lows as the dire state of China’s loss-making steel industry raises concerns that Chinese demand may not remain strong enough to take all the iron ore Australia wants to sell it.[/b]
A 20 per cent slide in the steelmaking ingredient in the past six weeks has been due to a worsening demand outlook, rather than the oversupply concerns that have previously dogged prices.
And it has happened despite supply concerns easing in the wake of BHP Billiton’s Brazilian iron ore dam disaster and delays to Gina Rinehart’s Roy Hill project in Western Australia.
Yesterday, iron ore index prices tracked by Metal Bulletin were trading at $US45.44 a tonne, down US91c and approaching a 10-year low of $US44.59.
Despite the lower prices, most Chinese steel mills operating in the slowing Asian powerhouse remain unprofitable, because steel prices have been dropping just as fast.
Illustrating the weakness in the market, the international commodities shipping benchmark, the Baltic Dry Index, hit a record low on Thursday largely because of slowing demand for iron ore carriers.
Peter Malpas, a director at the Perth office of Braemer ACM, one of the world’s biggest ship brokers, said the latest signs were worrying.
“I’ve always said West Australian producers could sell every tonne of iron ore to China — the question is just at what price,” Mr Malpas told The Weekend Australian.
“But the signs in the last few months are that this may no longer hold true, and the fact we are seeing iron ore prices themselves so low at the moment also indicates that.”
The current quarter is traditionally when shipping prices should spike as steel mills restock before the Brazilian wet season and WA cyclone season.
But this is not happening, with shipping costs to China falling to near-record lows of $US4.25 a tonne this week. At the same time, Braemer data shows WA iron ore exports falling and Chinese port stockpiles rising, indicating less steel production.
Investors on recent trips to China have been surprised at the weakness in industry sentiment, something confirmed this week in a survey of Chinese steel mills conducted by Macquarie.
JCP Investment Partners senior resources analyst Levi Spry spent a week last month travelling through China, meeting industrial companies, including those working in steel, iron ore, property, coal, cars and machinery.
“Feedback from the meetings was far more bearish than expected, particularly in the short term, with a lack of visibility beyond the next 12 months,” Mr Spry said.
“At best, companies were hopeful of improvement in 2017. However, this appeared to be purely hope rather than anything more fundamental.”
Morgan Stanley analysts returned from a China field trip last week with similar feelings.
“We have not seen steel mills this bearish before, leading us to believe more will exit the market,” the bank said in a note to clients.
“We do not expect the traditional large-scale winter restocking of steelmaking raw materials to occur this year, and we expect this will likely be the ‘new normal’ going forward.”
Macquarie’s monthly China steel survey showed sentiment at its lowest in at least four years.
“We would expect more blast furnace closures to take place before year-end, which adds further downward pressure on iron ore prices,” the bank said.
The falling prices have taken their toll on mining stocks, with Rio down 11 per cent in the past six weeks, Fortescue Metals off 13 per cent and BHP, which has also been hit by the dam disaster at its half-owned Samarco operations, off 19 per cent.
Whether iron ore will continue to fall has divided analysts.
On the positive side, a big expected lift in global supply does now not seem as severe.
“The Samarco disaster has clipped Brazilian supply by 39 million tonnes in 2016 (including 9 million tonnes from Vale mines) and there is no sign of the first exports from Roy Hill,” Credit Suisse analyst Matthew Hope said.
“Overall, supply could reduce almost 50 million tonnes from our previous 2016 forecast without counting domestic supply in China, which falls (by up to 60 million tonnes) at a price below $US50.”
And he believes further higher-cost mine supply cuts can bring the market into balance, with China having a reputation for sustaining loss-making industry far longer than free-market players.
“We tend to believe supply will win and lift the price above $US50 a tonne,” Mr Hope said.
“Unwanted steel production should fall instead but, in China, rational economics appears not to have the same force as in the West.”
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Get used to $US40 iron ore – China steel chief
DateNovember 24, 2015 - 6:00PM
[Image: 1431915414646.png]
Perry Williams
Senior Reporter
A Chinese forecaster says $US40 a tonne is the new normal for iron ore.
[Image: 1448348406984.jpg]
Chinese steel industry heavyweight Li Xinchuang disputes Rio Tinto's claim that China will hit 1 billion tonnes of crude steel production a year by 2030. Photo: Joe Armao
Rio Tinto, BHP Billiton and Fortescue Metals Group should get used to the price of iron ore trading in a narrow $US40 a tonne range due to declining demand for steel, according to an official Chinese forecaster.
The price of iron ore, a key ingredient used to make steel, has slumped to just $US44.75 ($62.08) a tonne this week in the Chinese port of Qingdao, nearing a decade low of $US44.59 reached on July 8 this year. It has now fallen by 37 per cent so far this year and is on track to post a sixth-straight weekly loss.
Li Xinchuang Wrote:The oversupply of iron ore is much more serious than anyone pictured it.
Li Xinchuang, president of the China Metallurgical Industry Planning Association, said China's steel market declined by 2.2 per cent in the 10-month period until the end of October, continuing a trend for slowing demand among the country's industrial users.
"I really do think the steel market will remain weak for at least the coming year," Mr Li told Fairfax Media on Tuesday. "I think the iron ore price will remain in the low $US40 range for that amount of time – and possibly longer."
His bearish comments come just a day after commodity forecaster Andy Xie told Bloomberg the iron ore price will drop below $US40 a tonne before year-end, and trade in the $US30s in 2016 with mills in China cutting output and high cost miners facing pressure to turn a profit.
Mr Li said while Australia's three largest producers – Rio, BHP and Fortescue – would continue to make reasonable margins with iron ore at low levels, there would be a gradual reduction in the ability of Chinese steel mills to keep up with supply over the medium term.
"The oversupply of iron ore is much more serious than anyone pictured it. Of course the big Australian producers and Brazil's Vale have managed to cut their costs very effectively and are still very competitive. But I do not see a better price for them in the next period of time."
Production past peak
UBS said earlier in November that steel production in China peaked last year at about 830 million tonnes, and iron ore majors' BHP Billiton and Rio Tinto's forecasts have become outliers in the sector.
Mr Li agreed that steel production is now past its peak and said majors such as Rio and BHP needed to better understand the new reality of the steel sector in China.
Rio's peak steel production forecast is "around 1 billion tonnes towards 2030", while BHP recently revised its call to between 935 million and 985 million tonnes by 2025, from a previous forecast of 1 billion to 1.1 billion tonnes.
"It's very difficult to understand why their estimates remain so high. We don't see those sort of figures in our forecasts," Mr Li said.
A senior BHP Billiton executive told Fairfax Media last month that there is no light at the end of the tunnel for depressed iron ore prices, which will gradually deteriorate over the next few years before finding a new normal well below $US50 a tonne.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Iron ore surges past $US40
[*]
The iron ore price is continuing to defy dire forecasts in the lead-up to Christmas, with the Santa Clause rally extending to seven sessions.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US40.20 a tonne, up 2 per cent from its prior close of $US39.40 a tonne.
An 8 per cent recovery over the past week has seen the commodity rise above $US40 a tonne for the first time since December 5, though it remains more than 40 per cent down on the year.
The latest action has run counter to slumping oil prices and soft forecasts from analysts.
The federal government’s industry department was the latest to chime in with a new outlook, slashing its 2016 forecasts 19 per cent on Tuesday.
“Increasing supply from Australia and Brazil is forecast to drive seaborne iron ore spot prices down in 2015 and 2016,” the Department of Industry, Innovation and Science said.
Its analysts now see ore prices averaging $US41.30 a tonne in 2016, compared to a prior forecast of $US51.20 just three months ago.
The commentary follows last week’s news the federal government had trimmed its forecast to $US39 for the 2015-16 budget, while Goldman Sachs shadowed with a reduced projection of $US38 a tonne.
Goldman expects prices to average below $US40 for the next three years.
|
Homepage
PR Newswire
