Daily ore price update

Here is today’s iron ore chart:

Definitely looks like the spot market wants to test the $120 ceiling. 12 month swaps aren’t co-operating and the contango is gone but the spread has often been much wider than this so that may not hold spot back:

As I’ve said, though, anything over $120 now has highly questionable sustainability. Still, if prices can hold at these levels for a while, as I expect, some of the heat will come off the RBA as we see a short term bounce in the terms of trade. Certainly this is more significant that yesterday’s CPI report in terms of rolling back rate cuts. Something to watch.

On a related topic, Vale is reporting similar earnings falls to our majors. The following excerpts  from a Seeking Alpha preview makes some interesting observations:

The company released its production report for the quarter a few days back. It reported iron ore production of 83.9 million tonnes, which is 4.6% lower on a year-over-year basis. Production at its Carajas iron-ore mine, the world’s largest, dropped almost 11% year-over-year to 27.6 million tonnes in the third quarter. The suspension of projects, asset sales worth $1.2 billion, and a reduction in output of premium pellet products due to decreased demand from Europe and China reduced its share of the global sea-borne iron-ore market. The quality of the ore produced this quarter also emerged as a worrying factor. Vale attributed it to environmental licensing issues.

…Vale’s iron-ore production declined by 2.2% in the first nine months of 2012 to 234.5 million metric tonnes. In the same period, rivals Rio Tinto (RIO) and BHP Billiton (BHP) grew their output by 5% and 9.5%, respectively. While Rio Tinto’s quarterly iron-ore production rose to 52.6 million metric tonnes, BHP’s output stood at 39.8 million tonnes. Vale’s output of pellets, a processed form of iron ore used by steelmakers, rose by 2.1% to reach 14.5 million tonnes this quarter. The production of nickel declined by 16% to 49,000 tonnes, copper production dropped 20% to 68,000 tonnes, coal production increased by 91% to 1.73 million tonnes and that of potash fell by 15% to 141,000 tonnes.

…Vale is now pinning its hopes on Chinese infrastructure investment spending to revive an uptrend in iron ore prices.

While Vale continues to face short-term headwinds, we are bullish on its long-term prospects. The company does have high-quality reserves such as those at its $19.5 billion Serra Sul project in Brazil which is expected to contain 90 million tonnes of iron. Vale also has reserves in Guinea at Simandou, which contain one of the highest-quality untapped iron ore resources in the world. The company has been unable to tap these so far due to difficulties it is currently facing with Guinea’s operating environment. Vale still aims to boost its iron output to 460 million metric tons by 2017. That would mean a 40% increase, if successful.

Very similar to our own hopes and dreams, with more huge production increases in the pipeline. Another snapshot of the emerging glut. China’s steel production growth won’t grow enough and much of this mooted expansion won’t happen.

David Llewellyn-Smith
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  1. Vale is now pinning its hopes on Chinese infrastructure investment spending to revive an uptrend in iron ore prices.

    Aren’t they all.

    More capitalists desperately hoping for government spending by communists.

          • Dont forget the world’s greatest Treasurer and godfather to one of Rudd’s kids.

            What a loyal bunch.

          • Lorax, you might find the excerpts from Maxine McKew’s new book interesting – watch out for them in The Oz. Here’s an entree:

            “…it was revealed that Gillard had circulated false internal polling among Caucus members prior to the vote to oust Kevin Rudd… explosive excerpts from her book published in The Australian, Maxine McKew now confirms this…”


          • 3d1k, Now the question remains: who supplied the polling to Gillard and the hollow men?

            Paul Cleary, journalist for Australia’s premier broadsheet, has a clear view of the last piece in the jigsaw puzzle:

            He claims BHP set up the equivalent of an election war room with 20 staff working seven days a week to kill off Rudd’s proposed Super Mining Profit Tax before it had even been debated in Parliament.

            The big miners mounted a huge advertising campaign to present a very one-sided argument against the tax and then did polling to show the Prime Minister in a negative light.

            The polling was passed to Labor factional bosses something Cleary writes was confirmed to him by two cabinet ministers he did not name.

            Tax us if you can

          • Re unsubstantiated claims, I am confused.

            Are you referring to your post about Maxine McKew’s claim or my post about Paul Cleary’s claim?

            Also, you forget, I think you have praised Paul Cleary here in the past. Want me to dig up your comments for ya?

          • Cleary has strong views, almost along the lines of nationalisation, when it comes to the resources sector, perhaps influenced by his background and time in Timor? Nonetheless The Oz, as always, maintained its strong focus on balance and fairness – and publishes a range of views.

            I disagree with Cleary on the resources issue but occasionally agree with him on others.

            What is your point?

          • Nonetheless The Oz, as always, maintained its strong focus on balance and fairness

            Oh FFS! The Oz is Fox News in print. Its a conservative mouthpiece and everyone knows it. Even conservatives!

          • My point is that both Maxine McKew and Paul Cleary are/were journalists who wrote books on similar topic – both their claims are very well substantiated, with bonafide named and unnamed sources for their claim.

            Yet, you want us to believe the claims of a lefty ABC journalist and ignore the claims of an upstanding journalist from The Oz!!

            Somehow, the irony escapes you, but not to many readers here. Have a good day.

          • Maxine McKew was a Labor MLA at a critical time. Her partner is a former ALP National Secretary. In the mix you might say. She was there, she names names – no doubt many of which will furiously deny.

            Paul Cleary is a journalist.

          • The Oz is Fox News in print. Its a conservative mouthpiece and everyone knows it. Even conservatives!

            Conservative, as in reflecting the generally conservative views of the Australian electorate?

            Remember, the Oz backed Rudd in 2007.

  2. Vale’s problems are considerably more extensive and deeply problematic than most are aware, the author of the Seeking Alpha article was too kind.

    • +1. And the rather glib mention of Guinea’s “operating environment” doesn’t address the sizeable challenge Vale face in getting IO out of there in sizeable quantities.

    • Not to mention the difficulty of getting the IO to China in Vale owned ships that the Chinese have banned from their ports.