From The Australian: Rio Tinto chief Jean-Sebastien Jacques says the West Australian Nationals’ plan to hike iron ore royalties is the biggest risk facing the miner, joining his BHP Billiton counterpart Andrew Mackenzie in slamming the proposed extra tariff that is aimed at just the two mining giants. The Rio boss said the proposed extra
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 and 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 and 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.
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 burgeoned. 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…
A couple of tid-bits from Macquarie today outline the stregnth under the coal rally. For thermal: Thermal coal: Versus expectations, preliminary trade data released two weeks ago for total coal imports was weak, showing a small sequential decline. Considering the scale of Chinese production cuts that has resulted in a tight domestic market and
Big Iron is holding on today as Dalian weakens from last night’s gains. BHP is flat, RIO -0.3% and FMG 0.2% (note it’s a weekly chart today): Another warning on the rally has come from China, via Bloombergo: Steel production in China, the world’s biggest supplier, will probably contract this year and shrink further in
From BNAmericas: Brazilian mining giant Vale believes current iron ore prices of around US$60/t are not sustainable for the remainder of the year and that prices are expected to fall because of weakening demand from its main consumer, China. That’s according to the company’s IR director André Figueiredo, who spoke to journalists at an event
Yesterday the AFR praised Australia’s real estate Treasurer: Scott Morrison has done what his two immediate predecessors failed to do. In what may be remembered as an important early speech in his tenure as Treasurer, Mr Morrison on Thursday outlined in some detail the huge risks to the Chinese economy. Rather than trot-out the standard
Iron ore charts for August 25, 2016: Tianjin spot fell 0.7% to $61.10. Much less than paper which bounced overnight. Rebar rolled. Plenty here to suggest that the physical market remains firm on restocking despite the hysterics of paper markets. We should be looking for some decent falls in steel as the leading indicator for a
From Macquarie: July’s global steel crude output data, as released by worldsteel yesterday, shows world ex-China output to have recovered to positive YoY territory for the first time in over 18 months. This, coupled with China’s relative resilience reinforces the view that the global industrial recovery is gathering some momentum – something we covered in
Another round of Big Iron bust is upon us. Whether it is “the bust” yet who knows?! Dalian is now down -5% on the day with BHP is -1.5%, RIO -1.4% and FMG -4.2%: Lot’s of room for retracement when it comes… Big Gas is also stinking it up although WPL is up again 1.2% despite weak oil while OSH sinks
From The Guardian: Scott Morrison has criticised the proposal by the Nationals leader in Western Australia to put a tax of $5 per tonne on iron ore mined by BHP Billiton and Rio Tinto. Brendon Grylls has been pushing for the tax, saying it would raise an estimated $1.5bn in revenue and help the state’s
Iron ore charts for August 24, 2016: Tianjin spot fell 0.2$ to $61.50. Paper flamed out overnight. Rebar is still strong suggesting steel restocking. BHP and RIO fell -2.5% each in London. Morgan Stanley is warning: Ahead of 4-5 Sep G20 Summit in Hangzhou, the government is imposing controls on local steel mills to clear
Big Iron is blowing off. Dalian is down marginally but BHP is 1.9%, RIO 1.1% and FMG tearing it up above $5 up 3.7%: This is happening even as the prospects for iron ore fundamentals are clearly turning south into Q4. A classic blow-off scenario. Citi shows how well the underlying dirt has fared this
From the ABC: The Nationals’ proposed tax increase on the two biggest iron ore miners would pose sovereign risk issues, WA’s State Development Minister says, as Labor continues to seek to drive a wedge between the two government alliance parties. The Minister, Bill Marmion, said any changes to state agreements that were not made cooperatively
Iron ore charts for August 23, 2016: Spot strong with Tianjin benchmark up 0.8% to $61.60. BHP and RIO jumped 4% and 3% in London. Dalian lost some of yesterday’s gains overnight. Singapore strong. Rebar strong. Reuters has texture: “Generally speaking, steel fundamentals are strong, and mills are making a big profit and restocking iron ore,
I recently asked why Lance Hockeridge hadn’t got the boot following his Aquila shocker: Turns out that he has: Rail haulage group Aurizon is considering external candidates to replace chief executive Lance Hockridge, with the company’s board expected to decide on a successor next week. The rail group is believed to have received a shortlist of three external candidates
From Goldies: Solid result, costs to be sustained at sub-US$15/t The result posted by FMG’s management today is a solid one, which reflects the strong operational performance of FMG. The company continues to do a good job in controlling controllables, in our view & its war on iron ore costs continues with guidance of US$12-
When Monadelphus took off it should have been a warning to investors that the mining rally had turned really stupid. And today they get their reward, from The Australian: Engineering contractor Monadelphous is continuing to pivot away from the resources sector towards the oil and gas industry as the mining downturn continues to put pressure on
From Credit Suisse: ■ FY16 highlights: EBITDA of US$3.195bn vs CS at $3.245bn (cons. $2.98bn). Net profit at $985mn versus CS at $1.1bn. Dividend for FY16 at A$0.15 for the full year (final div of A$0.12), fully franked (payout ratio 36%). Net debt was US$5.2bn (known) excluding pre-payments. Pre-payment balances were $571mn at 30 June.
The triumph of Fortescue is upon us. Matthew Stevens sees world-class management: Anyone looking for reassurance that Australia boasts some deep pockets of home grown, world class, executive talent need look no further than annual results offered to the market on Monday by BlueScope Steel and Fortescue Metals Group. At The Australian it sees a river of
Iron ore charts for August 22, 2016: Tianjin spot rose 0.2% to $61.10, much less than paper which piled it on again overnight. Rebar remains supportive. Steel mill margins are still reasonable. There’s no reason here yet for steel mills to destock. The opposite, in fact, so firm pricing remains the order of the day perhaps
This kind of stuff is simply wrong: It’s boom time for mining stocks, says Lion Selection, prompting the LIC focused on junior miners to move its investment clock to 7. “Equity prices have been driven by investors buying back into the sector, however this is not the only money flowing in,” Lion says, noting anincrease in capital raisings. “Miners
Fortescue’s full year is out: So ends one the most extraordinary corporate transformations in modern Australian history. From a $90 all-in breakeven fours years ago, FMG is now in the low $30s. In 2012 the firm was negotiating with banks to waive debt covenants and cancelling expansion plans, today it has nearly halved its total debt