Find below the iron ore price table for March 14, 2013:
So! It seems to combined forces I mentioned yesterday – steel mill restock finished, Chinese data looking dodgy, real estate curbs being beefed up, urbanisation plans being refocused on “soft infrastructure” – have spooked the market, just as they should.
What we’re doing here is searching for a new equilibrium price that reflects this new reality. Where is it? Lower, that’s for sure. Maybe around $130. But as we know, these markets are volatile and we could easily overshoot.
There’s a few interesting comments today by Atlas Iron CEO Ken Brinsden that are apropos:
As the iron ore price continues to bounce around Mr Brinsden said the volatility of the spot price would continue – and that was nothing new.
“What I want to encourage you to do is in effect ignore the noise and the gross negativity about where we are with respect to iron ore pricing and for that matter story is generally true across the resources space” he told a RBS Morgan business breakfast in Perth today.
“And think through the sorts of things that drive the market.”
“There is still substantial growth in Chinese steel production, in which case underlying demand for iron ore is still going to be there.”
Mr Brinsden pointed to China’s own iron ore production, which fed about 300 million tonnes a year into the steel mills, and had much higher costs than sea born traded iron ore.
“Do you reckon sea born trade can turn on 300 million tonnes just like that?
“So the highest cost production, in my view, will continue to dictate the upside that is available in iron ore price.
This is one of the more elegantly expressed versions of the old “price floor” argument. But alas, it’s about five years too late. The 300 million tonnes that Mr Brisenden refers to will be online by the end of this year. Then there will be another 150 million tonnes every year after that for as far as they can see.
The lowest marginal cost of production is going to fall hard.
P.S. And for astro Oat:
Eat it, eat it, eat it, eat it
Get yourself an egg and beat it
Have some more chicken, have some more pie
It doesn’t matter if it’s boiled or fried
Just eat it, eat it, just eat it, eat it
Just eat it, eat it, just eat it, eat it, ooh.
