Daily iron ore price update (dream is over)

Here are the iron ore charts for April 30, 2014:

iron ore

The Baltic Dry capesize was down 1% and rebar futures eased to their lows.

What can one say? We’re going down. This kind of price action can only be associated with destocking. It could be mill inventories or it could be port stock liquidation after the Chinese declaration of war on margin speculators. Or both.

That it’s happening while steel output is firm suggests the latter. If margins have been jacked on speculator loans and they’re forced to dump stock then the falling price will increase the pressure for more sales as collateral values fall. A price crash through the 2012 low is a very real risk if a speculator margin squeeze transpires.

Baosteel is crowing, from Reuters:

Baosteel, which has long complained about the high cost of iron ore, said it still expected prices to hold around $100 a tonne in the medium term, not far below current levels, despite a big increase in output by miners.

…”Financing deals on imported iron ore are facing risks, but as far as steel manufacturers are concerned, if the loosening of these risks can bring iron ore prices back to a rational level, it can only be a good thing,” Baosteel chairman He Wenbo said after the company reported a 7 percent fall in quarterly profit.

…”Port inventories are too high and overseas supplies will increase by a large amount from the second half,” said Fu Yang, an analyst with Shanghai’s Guotai Junan Futures.

“For steel mills and traders, the problem is that banks are still squeezing credit and if they can’t repay loans when the letter of credit is due, they will have to sell iron ore to obtain cash, which might cause overselling in market and drag down prices to maybe even $90 a tonne.”

…Traders and mills, which are already struggling with cash flow, are expected to repay loans in May, raising market fears that they might have to sell their stocks to survive if banks decide to further raise the size of the deposit needed to obtain credit or cut access to credit.

“There are more steel mills starting to resell iron ore cargoes that they have purchased from global miners on annual contracts at index plus to lock in profit and get cash,” said an iron ore buying official with a state-owned steelmaker.

Baosteel’s He said the steel sector would continue to struggle, but the company did not expect new central government measures aimed at stimulating demand.

$100 is fair for the second half average, much lower next year.

Adding to woes for equities today, Vale was out with an earnings fizzer. Also from Reuters:

The company’s profit fell by nearly a fifth from a year ago as iron ore prices fell, and executives on the call said Vale had overestimated expected ore prices for the quarter.

It didn’t stop them from doing it again. Stand by for a wave of iron ore earnings downgrades here.

The iron ore dream is over, my friends.

Houses and Holes
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    • jim from qld

      My first thought was a coles inspired:

      “Down, Down, Income is Down!”

  1. migtronixMEMBER

    Not for Vale

    Vale’s iron ore output came to 71.1 million tonnes in January-March 2014, its best first-quarter performance since 2008, it said on Wednesday April 30.

    • HI Portuguese

      While the uncompetitive minings are losing contracts, VALE is doing new ones. You are right, the output increase a bit and they had a very good 1Q2014

      This is due many factors, including the weather. We got a 1Q2014 with low amount of rain, that not postpone any deal with chinese companies.

      The profit in 1Q2014 was USD 2.24b (or “mil milhoes” as you said in portugal) and the forecast is good for the new contracts…

      We will see the future….

  2. Researchtime

    Maybe when Baosteel mentioned $100/t it was talking its own book, trying to stabilise its investment with FMG and others. The current iron ore price still has a fair bit to fall to match the general decline of the rebar price. Remarkably, rebar (437) is only still only declining moderately, despite a significant increase in supply, suggesting that there is still substantial demand in construction – so that bubble has yet to pop. However, 466 plate is approaching 2009 lows (which makes sense given there is a massive over-supply in shipping – aka, Baltic Shipping Index, which probably says more about freight oversupply than demand), 565 is <20% of its 2008-2009 lows, as is 455. In which case I suspect people are still being far to sanguine regarding what price Rio spec will be in the 4Q14.

    Prepare yourselves and girt your loins.

  3. I’m guessing it is taking more than a bottle of Grange to get the Chinese kleptocrats to unleash the next round of stimulus.. Don’t worry, 3d1k will evolve..

    • When this is the best a paid astroturfer (and a fairly good one at that) produces, you know there’s issues ahead.

      • Cheers Booboo!

        It’s a fair question when you put it in the context of the many many calls here at MB that the IO game is over.

        Remember all majors forecast a moderation in price, is now the time? Or is this an unwind of some financing? Bao and CISA routinely barrack lower pricing, understandably so. I don’t have a crystal ball but watch with interest.

    • How’s the Minerals Council team going in Beijing 3d1k? I thought they’d have the Politburo nailed down for breathtaking stimulis by now.

      • Give it time. There will be a small shakedown first. It is unlikely to be called stimulus. Li is busy promoting the curiously named ‘yellow waters’ plan to extend growth to regions thus far under-developed (I linked to this three or four weeks back). The 2014-2020 urbanisation plan awaits. If all comes together, breathtaking indeed.

  4. This is only a shake out of the speculators/ponzi schemers of iron ore and the reining in of less-efficient steel makers. Markets are always spooked by either greed or fear. Once the curve sets in, the iron ore spot etc will rebound!

  5. I refer you to RIO site called the HISMELT PROCESS. Have a look and see for yourself !

    Also from Bruce STEINER , President of the American Coke and steel Chemicals Institute stated in 2013 that many integrated steel and iron companies are turning to natural gas over coal because its cheaper and more abundant than coal especially in smaller operations overseas, where the coal must be shipped in

    And finally from Peter Warrian of the University of Toronto said in an interview reported 03/11/2013 that coke will all but become obsolete in most steel making in about a decade. A process called direct reduced iron uses natural gas to concentrate iron ore into pellets within a furnace that required less, or in some cases, no coke at all and about 21 million tonnes of steel is made this way now

    Although coke is still the main ingredient for the the process of manufacturing quality steel today that way of thinking is changing with new innovations making the future cleaner and hopefully cheaper.