Daily iron ore price update (Crikey, that’s wrong!)

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Find below the iron ore price table for June 6, 2013:

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Rebar futures also sold off. And the chart:

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The dead cat is losing his levitation. Perhaps the broader global bounce today will help. Rebar stabilisation would be better.

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Today’s news is an effort by Glenn Dyer or Bernard Keane (or both) which comes up short at BS and Crikey:

Around half the annual volume of seaborne iron ore traded globally is priced on the basis of a quarterly index — that is based on global spot prices in the middle of the last month of the quarter — meaning current price levels, if sustained for the next fortnight, will be the price base for the September quarter’s contract.

It’s also for that reason that iron ore prices in March set the level for the current quarter (which ends on June 30).The value of the Aussie dollar is down around 8 per cent from the start of May and 10 per cent from the high of $US158 in February 2013, which will cushion the impact of the small fall. That means there could be another nice (but smaller) boost to our terms of trade in the June quarter national accounts (to be revealed in early September).

I admire the effort to extend coverage to the grossly over-ignored iron ore price but there are some learnings needed here.

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First, the dollar does not effect the terms of trade.

Next, the following is wrong on a couple of fronts:

Reuters reported on Wednesday that iron ore exports to China from Port Hedland were a record 23.3 million tonnes in May, up 21 per cent from April and 34 per cent from May 2012. Chinese mills are clearly buying more ore as the spot price dips. If you believe the media stories in papers such as The Australian and Fairfax’s Sydney Morning Herald, The Age and The Australian Financial Review, the Chinese steel companies are in all sorts of problems, making dire warnings about their financial health, the strength of demand in China, etc, etc.

The usual moans and groans that seem to intensify around the middle of the last month of the quarter – that’s nothing to do with the way prices will be set for the September quarter, is it? But their purchases belie their moans. Don’t you wish the Australian media would connect the dots sometimes?

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Fairfax’s coverage of iron ore is if anything overly bullish. See Jamie Freed’s farewell historical rewriting today as an example. Moreover, accusing Chinese steel mills of playing possum is absurd given steel prices have tanked again:

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No doubt mills are constantly adapting their inventory management to lower ore prices as much as possible but their margin pressure is quite obviously real.

I have noted before Dyer’s preference for seeing the iron ore market through an anti-Chinese prism. Bernard Keane meanwhile is a card carrying member of the Australian exceptionalism brigade. Not much point joining dots that you drew yourself.

But what do we make of the Port Hedland figures? It’s a blowout that’s for sure, some 15% above previous record volumes to China in a single month.

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On Chinese demand we know that they continue to over-produce steel even as they run down iron ore stocks. Also, port stocks have stopped falling as that draw down has eased so mills are now most likely living hand-to-mouth from the spot market as supply expands.

On the supply side, BHP and FMG are the main users of Port Hedland so they are clearly shipping product hand over fist. That they are able to do this as the price slumps says something about existing supply capacity even before the big ramp up arrives.

It bears watching. I doubt these shipping volumes can be sustained in the second half as steel mills are forced to cut more production to stabilise steel prices but if it does continue there is a substantial offset here to falling prices for miner earnings, and net exports for June QTR Australian growth could be less of a drag than feared.

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Overnight pricing for the big miners was unsurprisingly dour:

Rio Tinto Plc (London)

27.47

-0.68

-2.42%

BHP Billiton Plc (London)

18.21

-0.22

-1.18%

BHP Billiton Ltd. ADR (US) (AUD)

33.72

-0.05

-0.16%

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.