The iron ore spot price fell yesterday 0.4% to $135.90. 12 month swaps eased a touch to $117.08. Rebar average resumed falls at 3529.
News today is all about Rio. From the AFR:
Rio Tinto is expected to update investors on its multibillion-dollar iron ore expansion plans next week amid predictions the global resources company will take a conservative approach to its development strategy.
…Instead of approving major greenfield developments including Silvergrass and Koodaideri, the Rio board is predicted to prefer the brownfield expansion of West Angelas, Yandicoogina and possibly other nearby mines.
…“It is going to be economic. They have sunk the capital in the infrastructure so capital intensity of the final stage is going to be low. The return on incremental capital to get to get the volume up is going to be very appealing for them,” said said Royal Bank of Canada analyst Chris Drew.
Mr Young said the lower the capital intensity, the higher the potential return, which was a good outcome for shareholders.
“By minimising capital intensity it means that over the medium term, there’s positive cash flow across the board,” he said.
“It means next year they can pay down debt and in February 2015, they can look to rebase the dividend.”
That sounds right to me. Westpac has joined the ranks of the iron ore bears:
Iron ore will probably drop 19 percent by the end of the year as demand slows and supply increases, Westpac Banking Corp. (WBC) said, joining Goldman Sachs Group Inc. in forecasting declining prices.
Ore may fall to $110 a ton by the end of the year, Justin Smirk, the second-most-accurate industrial metals forecaster tracked by Bloomberg over the past eight quarters, said in a report today. Prices may rebound to about $140 a ton in mid-2014 before dropping back to $110 in September, he said. Goldman said last week the steelmaking ingredient was among commodities that may decline at least 15 percent next year.
Iron ore climbed to a two-month high on Nov. 6 as China, the biggest buyer, boosted stockpiles to the highest level in a year. Banks from Goldman to UBS AG expect that supply expansions led by Australian producers will push the seaborne market into surplus next year. The pace of China’s economic growth may slow to 7.4 percent in 2014 from 7.6 percent this year, according to economist estimates compiled by Bloomberg.
“We are now looking for prices to ease by the end of the year, as demand slows and supply picks up a little more,” Smirk, a senior economist at Westpac, said in the report.
I disagree with this. China does not look well enough stocked at this point for its seasonal early year steel rebuild. I expect firm prices through year end and distinct softening to begin as we move through Q1 once the steel restock is complete. Q2 is a real worry as China slows and the ore deluge flows. Nor do I expect to recapture $140 next year unless the Chinese again replenish their stimulus pipeline.
Meanwhile, Australia’s mining overlord, Clive Palmer, is threatening to invoke a scorched earth clause in his dispute with CITIC:
Mining magnate Clive Palmer is considering forgoing more than $500 million in royalties to break his contract with Chinese-owned company Citic Pacific over the $7 billion Sino Iron project in the Pilbara.
With both parties heading back to court next month after mediation failed, Mr Palmer revealed he was considering using a clause in the contract to end the long-running legal dispute.
The move would be a major risk for Mr Palmer because it would deny him hundreds of millions of dollars of revenue stream he was hoping to use for other business interests.
But the new MP said he was confident another iron ore player would be willing to step up to take on the project.
If Mr Palmer invoked the clause – in which he would agree with Citic Pacific the processing royalty on the project cannot be calculated – it could also require the Chinese-owned company, which has already spent more than $7 billion on the project, to return the land at the mine back to its natural state. The project has yet to export any ore.
Perhaps he can swing something in the Senate.
