Dalian is slightly off its overnight limit down effort today and not even it cares about the Chinese inflation shock on its doorstep, rising after the print: Likewise, Big Iron seems to think that nothing can stop it now with BHP -0.5%, RIO flat, FMG -0.7% and WHC -1.5%: I can only repeat, China does
Iron ore price, steel price and futures published daily
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.
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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Super stuff here from Macquarie: What to watch for in 2017 Government policy: There’s no getting away from it – in commodities, just as with pretty much any other asset class, government policy is garnering ever more influence. In a world where governments are struggling with disenchantment among the electorate and stagnant global growth,
Extraordinary circumstances today with the iron ore bubble unchanged from overnight: But Big Iron headed for the heavens with BHP 1.7%, RIO 2.7%, FMG heading for $7 up 3% and WHC 1.4%: When it will end nobody knows given it has no underpinning but bullshit is certainly mounting up: Fortescue shares jumped from $6.70 to
Iron ore price update for December 7, 2016: Tianjin benchmark jumped 4.8% to $82.40. Paper went up again overnight. Coking coal futures too. Rebar is running. Mill margins are again near the lows. Port stocks rose another 500k tonnes last week to new highs of 11.75mt. Thermal keeps falling. Texture from Reuters: Traders are replenishing
From Macquarie: After a weak mid-October to mid-November, iron ore shipments from Australia and Brazil have picked up over the past couple of weeks, according to preliminary port data. The run rate of shipments is currently close to YTD highs seen in late-August, with Australian exports 8% higher than the YTD average and Brazilian
From the ABC: The Chamber of Minerals and Energy (CME) has pulled an anti-mining tax television advertisement after one of the participants complained he had been misrepresented. The advertisement was designed to discredit a proposal by the WA Nationals to charge Rio Tinto and BHP Billiton a $5 rental fee for every tonne of iron
From Ifeng: China Academy of Social Sciences Institute of Finance and Economics and other institutions on November 30 released the latest research results that the 35 large and medium cities in the prevalence of the risk of overvalued, hot cities overall risk situation is more prominent, and second-tier cities are not limited to purchase Risk
Thermal coal is well into its bust, today at $83 after peaking above $110: Coking coal is now beginning to follow. After peaking at $314 it is down to $300 today: From Morgan Stanley: Turmoil persists: Seaborne metallurgical coal’s last round of quarterly price contractnegotiations were messy (commodity fruitCAKE: Met-coal’s peculiar Q4 deals, 11-Oct-16). That’s
From The Australia Institute: Western Australia’s National Party leader, Brendon Grylls, has proposed increasing the existing ‘mining lease rental’ on iron ore production in the state from $0.25 to $5 per tonne. It would apply only to mines that are more than 15 years old. Ideally mining production would be taxed with a well-designed tax
From Matthew Stevens: There is a future mine whose first phase will cost as little as $US4 billion ($5.4 billion), that has so far cost $2 billion and that is running at least two years behind a schedule because of successful environmental lawfare. It is owned by Adani Group, which is a listed Indian company
From Citi: The 2017 outlook has seen significance price upgrades across the sector. While China policy drove the sector in 2016, we expect this momentum continues into 2017 and 2018 with the positive outlook for commodities our first theme for the coming year. Our view of a tightening commodities market is underpinned by healthier growth
From the ABC: A rail line that will link Adani’s $21 billion Carmichael coal mine to the Abbot Point port is one step closer, after passing its first assessment hurdle for a Federal Government loan. The Government’s Northern Australia Infrastructure Facility (NAIF) has been asked to consider lending money for the line, running for 310
Iron ore charts for December 2, 2016: Tianjin benchmark fell 0.1% to $78.00. DCE and SGX paper fell more. Rebar rose firmly. Steel mill margins still stink. Coking coal futures fell. Coking coal spot has only pulled back marginally to $308 but thermal is going bust. Other bulks will follow in due course.
Don’t say I didn’t warn you, from Macquarie: The key takeaway from our recent China trips was that inflation concerns within China are clearly rising already, and policymakers are increasingly concerned with keeping inflation under control. PPI inflation turned positive in September for the first time in 54 months, mainly driven by higher price
Iron ore charts for December 1, 2016: There is nothing normal about this volatility. Tianjin benchmark launched 8.2% to $78.10. DCE and SGX paper rocketed. Rebar fell. Coking coal futures fell. Steel mill margins collapsed anew. Bloomie has a take that helps explain it: The Chinese speculators shaking up global commodity markets are switched-on,
Gold has plunged to new lows in Asia today: I think we’re going back to the lows before flushing out the market. Miners are obviously following: It may not be until Europe seriously threatens that we’ll see a turn. That’s probably not until the French election. Big Iron problems are forgotten as Dalian rallies to
Readers will know that part of the reason that I left Business Spectator many years ago was the mutual disgust felt by myself and my betters over my holding to account their disgraceful conduct around Kevin Rudd’s Resource Super Profits Tax (RSPT). It was predictable then that today’s resource taxation debacle would transpire given the