Daily iron ore price update (Vale’s pump & dump)

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Iron ore rallied another 2% yesterday to $120. 12 month swaps also rose a smidge to $113.08. Rebar average and futures both rose a bit as well. Many of these charts (back Monday) have nice double bottom patterns in place too so we might see this run to $130, although the 12 month swap is slowing. CISA said that early June steel production is up on mid-May so production cuts have ceased for now and a little seasonal demand is coming through.

BHP and Rio bucked last night’s sell off and with a falling dollar will be areas of strength today.

Longer term, the news still poor. Any thought that Australian majors won’t deploy their new capacity as quickly as possible has been erased by Vale. From Steel Guru:

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Bloomberg cited Mr Jose Carlos Martins executive director for Ferrous and Strategy as saying that Vale SA, the world’s largest iron ore producer, aims to increase production to record levels in an attempt to win back market share while higher cost competitors are hurt by falling prices.

Mr Martins said that “The Rio de Janeiro based company can produce as much as 350 million tonnes next year, 40 million tonnes more than this year Vale is sticking with an official target of 326 million tonnes given in December. 40 million is something we believe is possible. There is space for Vale to grow by recovering market share and by kind of squeezing high cost producers.”

Mr Martins said that The Brazilian miner will weather lower iron ore prices better than startups that began when prices were higher. Some mines aren’t profitable when prices fall below current levels because of lower ore quality and scale. Prices have fallen as much as 31% since February.

He said that “Many of the juniors will fail. I don’t think they can live with the price below USD 110 declining to name firms that may face financing shortages. Many junior companies will be absorbed by big guys. Vale isn’t planning any more acquisitions as it continues to work on consolidating recent purchases. We have to digest what we ate.”

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.