Daily iron ore price update

Find today’s ore chart below:

$120 suddenly looking pretty tough for ore and thermal coal has resumed its decline too. There is a lesson in thermal coal for all of the bulks as China shifts its energy paradigm and big thermal coal production expansions are hitting a fading growth engine. Expect the same for iron ore and met coal in the years ahead.

There is a bit more related news this morning. CBA cut its bulk price forecasts yesterday:

Investors have looked to a stimulus-fuelled surge in commodities demand to support prices, but the boost may not be forthcoming.

“Contacts on our recent China trip made it clear to us that if China’s labour market holds up, no additional policy stimulus is likely,” Mr Shaw said in a research note.

CBA’s commodities team expects Chinese steel output will finish flat in 2012 and grow by 4 per cent in 2013, about 2 per cent less than previously expected.

Ongoing production from loss-making Chinese iron ore producers has also surprised analysts, as high-cost Chinese mines continue operations regardless of profitability.

CBA’s coking coal estimates have been cut by 7 per cent to $US180 a tonne in 2013, 16 per cent to $US170 a tonne in 2014 and 3 per cent to $US192 a tonne in 2015. Iron ore price forecasts have been cut by 4 per cent to $US117 tonne in 2013, 11 per cent to $US119 a tonne in 2014 and 9 per cent to $US115 a tonne in 2015.

Poor bastards. Getting there, but it won’t be enough. Note the continued production of ore in China, which will not stop if I’m any judge. It is surely cheaper to subsidise that than let the majors gouge you above $150 again. The iron ore price floor is busted but analyst are clearly still struggling with the new reality.

Then there’s demand. The World Steel Association was also out with its 2013 forecasts and it sees Chinese growth 40% lower than CBA

The World Steel Association (worldsteel) today released its October 2012 Short Range Outlook (SRO) for 2012 and 2013, the half-year revision from its April 2012 statement. worldsteel forecasts that global apparent steel use will increase by 2.1% in 2012, which is considerably lower than the 6.2% growth achieved in 2011. In 2013, world steel demand will grow by 3.2% and reach a record high of 1,455 Mt.

worldsteel Economics Committee Chairman Hans Jürgen Kerkhoff said: “Earlier this year we were seeing some signs of recovery from the slowdown of the last quarter of 2011 and we expected a better second half performance in 2012. However, the economic situation deteriorated during the second quarter of this year due to continued uncertainty arising from the debt crisis in euro zone and a sharper than expected slowdown in China. These factors have weighed heavily on business confidence and manufacturing activities around the world. As a result momentum in both the developed and emerging part of the world weakened considerably.

“However, we expect the situation to gradually improve in 2013 on the basis that the euro zone crisis can be contained, the US successfully deals with the fiscal tightening due in 2013 and the economic stimuli measures secure a soft landing in China. Since the 2008 economic crisis, uncertainty and volatility has become the norm for the steel industry but it is worth noting that world steel demand has maintained positive growth despite all the headwinds and lingering difficulties,” he concluded.

Steel demand in China is expected to increase by 2.5% to 639.5 Mt in 2012 after 6.2% growth in 2011. In 2013, Government stimulus measures are likely to moderately improve the economic situation. This follows sluggish exports resulting from the global economic slowdown. Thus China’s apparent steel use is expected to rise by 3.1% and will reach 659.2 Mt in 2013.

Similarly, due to both unfavourable domestic and external economic conditions, India’s steel demand growth is projected to slow down to 5.5% in 2012 and 5.0% in 2013. Apparent steel use will reach 73.6 Mt in 2012 and 77.3 Mt in 2013.

Apparent steel use in NAFTA is expected to grow by a healthy 7.5% in 2012 to 130.4 Mt, due to improvements in construction activities and a strong performance from the automotive industry but in 2013 steel demand growth will slow to 3.6%. Apparent steel use will reach 135.1 Mt in 2013.

Most countries in Central and South America are also facing headwinds from the poor external economic environment as well as domestic tightening. Apparent steel use in the region is forecast to rise by 3.8% in 2012, but in 2013 it is projected to grow by 6.3% and reach 50.4 Mt.

With the debt crisis in the euro zone weighing heavily on the economic activities of the countries in the region, apparent steel use in EU 27 is expected to decline by -5.6% in 2012. In particular, apparent steel use in Spain and Italy in 2012 is expected to fall by -11.9% and -12.6%, respectively. The most resilient country Germany will also experience a decline of -4.7% in 2012. In 2013, the situation is expected to improve and steel demand in EU 27 will recover by 2.4%. Steel demand in Europe, however, remains at a depressed level and economic growth between countries continues to be uneven.

Japan’s apparent steel use is projected to increase by 2.2% to 65.5 Mt in 2012 aided by the reconstruction activities and government stimulus measures. However, the manufacturing sector is struggling with the strong yen and falling exports and in 2013 steel demand in Japan will decline by -2.9% to 63.6 Mt.

In the CIS, apparent steel use is forecast to rise by 0.8% in 2012 and by 3.9% in 2013, much slower than the 13.8% achieved in 2011. Steel demand in 2012 will be 55.2 Mt and 57.4 Mt in 2013.

The recovery of steel demand in the MENA region has been slower than expected due to continuing political instability but apparent steel use in the region will still increase by 4.9% in 2012. In 2013 the growth rate is expected to accelerate to 6.7% and steel demand will reach 66.9 Mt.

The developing and emerging world overall will see their steel demand growing by 3.0% and 3.7% in 2012 and 2013 respectively, whereas in the developed world steel demand will contract by -0.3% in 2012 and then grow by 1.9% growth in 2013.

This is more plausible but is still pretty rosy. My own view is that the global zombie will shuffle forward so long as Europe fails to abandon its fiscal suicide pact so I see 2013 steel output as flat. Hence, an average iron ore price of $110 is more likely in the first half and then falling again in the second. Same for metallurgic coal. Australian production expansion will need further rationalisation in both.

There is also a potted history of iron ore at The Economist today but it is surprisingly free of useful data and hence its conclusions are pretty useless.

David Llewellyn-Smith
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Comments

  1. “Note the continued production of ore in China, which will not stop if I’m any judge. It is surely cheaper to subsidise that than let the majors gouge you above $150 again”

    This is something those in ore mining jobs might need to be concerned about – some have argued that as prices contract, the bulk of ore production will shift to Australia, negating any domestic job losses.

    Possible I suppose but a tad optimistic I think.

  2. FWIW, when I see these words , or words to this effect;

    “and we expected a better second half performance in 2012” ….predicting a turnaround in the “2nd half” I take is a rote they don’t have a clue but are expressing hope. It’s about managing expectations at that point.

    Therefore no surprise they are off with their forcasts. Here is some more “hope”;
    ““However, we expect the situation to gradually improve in 2013 on the basis that the euro zone crisis can be contained,”