Iron ore price

A brief history of the seaborne iron ore price

The contemporary seaborne iron ore price first emerged in 2003 when the Chinese development model shifted up a gear. Indian suppliers broke free of an annual contract pricing system that had been dominated by Australia, Brazil and Japan for decades.

As Chinese demand surged, traditional supply and pricing mechanisms could not keep pace. Indian miners in Goa and Karnataka had surplus supply and filled China’s marginal new needs outside the old benchmarking system.

But it still wasn’t enough and other non-traditional suppliers began to emerge in South America and Africa. These needed more dynamic pricing mechanisms and by 2008 Platts, Metal Bulletin and The Steel Index were publishing a daily iron ore price.

As the Chinese demand surge continued, by 2007, major Australian iron ore miners were charging enormous premiums to prices from five years earlier. The annual benchmarking system began to strain to the point breaking, including significant diplomatic tensions between Australia and China. This culminated in a proposed merger of BHP and RIO Tinto which triggered panic in Beijing as it feared an already supply-constrained market and soaring iron ore price would by made worse by monopoly pricing. The Chinese SOE, Chinalco, moved the buy a blocking stake in RIO Tinto.

However, the GFC intervened and deflated tensions as Chinese demand collapsed. But Chinese steel mills found themselves still tied to very high prices and an annual iron ore price benchmark that did not reflect the new reality. Many defaulted on cargoes and walked away from deals.

To fight the downturn, China unleashed an enormous fiscal and monetary stimulus that soon had China building more than ever. The demand for iron ore rocketed to all new highs. With the memory of contract defaults fresh in their minds, major Australian miners, led by BHP and CEO Marius Kloppers, abandoned the annual benchmarks, forcing Chinese steel mills to adopt a short term iron ore price using spot and quarterly contracts. Brazil joined in in 2010.

Iron ore price at new records

The spot iron ore price soared to all new highs and triggered a global wave of new supply from producers such as Fortescue Metals Group, Ferrexpo, Kumba Iron Ore, Anglo American and Sino Iron.

With the rise of the short term iron ore price market, iron ore derivative markets grew. First in the Singapore on the SGX and later in China as the Dalian Commodities Exchange and the United States at Chicago Commodities Exchange (CME). Iron ore derivatives could hedge and future price iron ore output.

These last developments coincided with the peak in the China boom and prices began to fall from 2012. After peaking above $190 per tonne, the iron ore price collapsed into the $30s in 2015 as new supply outstripped demand.

Ahead were still many years of oversupply, a lower iron ore price, consolidation and mine closures…

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Some “bondcano”

I didn’t bother commenting much on last week’s “bondcano” debate in the MSM, from The Australian: Australian stocks trading at a premium are looking vulnerable as the bond market “erupts” from recent lows, according to Credit Suisse, which names Transurban, Sydney Airport, Healthscope and Crown as among those on shaky ground. Equity strategist Hasan Tevfik

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Hillary debate win hits Big Gold

Big Iron is running on the spot at the moment with BHP -0.7%, RIO -0.3% and FMG 1.4% as Dalian is up 1% today: BHP is still fighting to break through its bullish ascending triangle pattern and FMG may be forming a mighty double-top but neither is confirmed. Big Gas is weak with WP -0.2%, OSH

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Can steel consolidation save iron ore?

From Macquarie:  Almost exactly a decade after the merger of Arcelor and Mittal and Tata’s takeover of Corus, and steel mega-deals are back in vogue. While there are some similarities in the current deals, the market backdrop could hardly be more different. In 2006 industry capacity utilisation was touching 95% at times, and China

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Daily oil and LNG price update (no deal)

Brent oil was clubbed lower to $46.41. Henry Hub is still warm: The OPEC freeze has now reached its inevitable denoument, from Bloomie: As producing countries gather in Algiers for talks on Wednesday, Saudi Arabia signaled for the first time it may accept the idea that Iran keep output at maximum levels but doesn’t expect

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Big Iron falls with Dalian

Dalian is down 2% today taking Big Iron with it. BHP is -1.3%, RIO -1.2% and FMG -1.8%: This despite upgrades from MS: Bulking up in 2016-17: The Commodity price revisions – “Global Metals Playbook: 4Q 2016” – are most pronounced in the bulk commodities. These are the materials thathave benefited most from the stimulus

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Big Gas holds on as OPEC jibber jabbers

BHP is still trying to break its bullish ascending triangle pattern today down -0.2%. RIO is flat and FMG -1.2% as Dalian has lost much of its overnight gain at the open: Big Gas is bearing up OK as OPEC leaked details of Saudi offering to cut production, rebounding oil a little from the Friday shellacking.

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Chinese steel mill sentiment holds up

From Macquarie’s latest Chinese steel mill sentiment survey:  Orders and sales: Mills reported improved domestic orders over the past one month, driven by a clear pick-up in orders from infrastructure, construction and auto sectors. This is in line with the official statistics that both infrastructure and property FAI rebounded in August after a soft

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Daily iron ore price update (pain trade)

Iron ore charts for September 22, 2016: Tianjin spot jumped 1.6% to $56.30. Paper was flat overnight. Rebar was flat yesterday. Financialisation is wreaking havoc with this market again but I still can’t see how it can overcome clearly weakening fundamentals. Perhaps it can prevent the seasonal falls from getting too deep. In news, Vale

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Fortescue confesses Vale JV a goner

From Reuters: The talks have since slowed down significantly and “Vale has expressed that they are less enthusiastic at the moment”, Fortescue Chief Executive Nev Power told Reuters on Thursday. “Presumably they have higher priorities in the short term. Ultimately the need for it will be there and we think that interest from customers will

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Dog > bell > salivate > buy dirt

Here’s the latest from Reuters in iron ore: Surging coal prices are prompting many Chinese steel mills to opt for higher grade iron ore to boost efficiency and use less coal, forcing suppliers of low-grade ore from India and Iran to offer deep discounts to attract buyers. At an annual iron and steel conference in

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China’s steel inventories are rebuilt

From Macquarie: According to the latest CISA 10-day statistics, in the first 10 days of September its member mills’ daily crude steel production climbed by 4.65% from late August to 1.76mtpd, which is the highest production rate since June this year. Steel inventory among those major mills increased by 11% since the end of August

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Daily iron ore price update (salivate)

Iron ore charts for September 21, 2016: Spot up 10 cents to $55.40. Paper salivated at the Fed overnight. Rebar bounce. Nothing changed. Going lower. In news, the World Steel Association released August data: World crude steel production for the 66 countries reporting to the World Steel Association (worldsteel) was 134.1 million tonnes (Mt) in

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Big Iron pins hopes to China bubble

Big Iron is back, pinning its hopes to China’s suddenly gob-smacking property bubble (pun intended) with BHP 1.2%, RIO 1.5% and FMG 2.1% and again pushing $5: Dalian has opened soft after last night’s gains and I really can’t see the upside here. We’re still headed into seasonal weakness, port inventories are destocking, coking coal

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Big Iron hit as China re-opens soft

Chinese markets have re-opened after a few days off and Dalian iron ore is immediately under pressure again, down -1%. Big Iron is mostly following with BHP -0.6%. RIO -0.9% but FMG up 0.6% just because: Big Gas is enjoying a better day as oil rallies on Libyan tensions and OPEC scuttlebutt with WPL -1.6%,