Find below the iron ore price table for March 18, 2013:
Rebar futures bucked the firmer bid:
Last week’s inventory data is out and shows stabilisation in both general inventories and Indian sourced inventories.
Both a pretty neutral results.
So, spreads are compressing as expected with both spot to swap and spot to rebar at their least wide since the blast off of late last year. Spot to swap is now under $20, which is getting reasonable for this price bracket. We are clearly approaching some kind equilibrium and might see a stable period with prices in the current ranges.
In news today there’s lot’s of happy analysis seeping out of the Hong Kong Mines and Money conference. You don’t make money being neeeaargative, do ya? I could pick on any number of poor sods but AME Group is as good as any, from The Australian:
AUSTRALIA’S emerging iron ore producers will struggle to expand in tough market conditions as the majors increase their power to moderate price volatility, according to industry experts.
A list of iron ore and coal hopefuls had looked to rapidly enter the market on the back of strong prices and demand, but with conditions weakening in the past year some have faced tough hurdles, particularly in obtaining finance.
AME Group chairman Shaun Browne, speaking at the annual Mines and Money conference in Hong Kong yesterday, said despite the push by iron ore juniors to become alternative suppliers of the steelmaking ingredient, the major producers would continue to dominate the market.
Mr Browne said the delay to the $6 billion Oakajee Port and Rail infrastructure had pushed back 45 million tonnes of export capacity from a new emerging iron ore province.
“We do expect reasonable tonnage to be added to the market around late 2014, 2015, from the Pilbara region, as well as Brazil and West Africa.
“But the added production is comparatively small and does not move the needle in comparison to the large players,” Mr Browne said.
With the iron ore industry dominated by the major players, BHP Billiton, Rio Tinto and Brazil’s Vale, Mr Browne said prices should be less volatile.
“The idea of being a producer that is a price-taker is starting to shift,” he said.
I have no doubt that the majors will compete largely against one another. It’s one reason why I see long term prices at $80 not $50. But the tonnages coming online from the majors is alone enough sink the market in an era of Chinese transition. There should still be a reduction in volatility but not for the reasons cited.
Volatility is the result of a steepened supply/demand curve in an inelastic market. Iron ore supply is rapidly catching up and will be in surplus by year end so there will be spare capacity to absorb periods of higher demand. The curve will flatten and volatility on the upside and down diminish. You may have noticed, however, that this is the opposite rationale proposed by Mr Browne. If he’s right and supply remains constrained by monopoly forces then volatility is here to stay.
Mr Browne does appear rather to be operating in a time warp. The idea that producers are no longer price takers shifted long ago, peaking in 2007 with the BHP move on Rio. It is now very much headed back the other way. The lowest marginal cost of production is the era ahead. Just as it was when majors dominated supply prior to the China boom.
