From Bloomberg:
Iron ore will probably hold near $50 a metric ton by year-end rather than tumble to $40 as supply disruption at a venture owned by the world’s largest miners may boost prices, according to Citigroup Inc.
The loss of 25 million to 30 million tons a year of supply from Samarco Mineracao SA will coincide with cuts in Chinese production, lifting prices of pellets and lumps, the bank said in a report on Monday. The benchmark iron ore price will resume a decline to below $40 when sizable cuts to China’s steel output occur next year after the Lunar New Year, Citigroup said.
“The loss of such volumes at the same time that Hebei and much of northern China received the first snow of the season suggests a bullish outlook for pellet and lump premiums,” analysts including Ivan Szpakowski wrote. “We continue to expect a larger shakeout in iron ore prices to occur post-Chinese New Year.”
Perhaps but seems too bullish to me. Northern China construction will equally be affected by a bad winter and the market set up is very bearish with clear slack in the major’s mining capacity, rising inventories at Chinese ports and falling steel production. My view at this stage is that BHP itself will be able to make at least a portion of the lost production via the Pilbara. The same is probable re Vale.
Deutsche sees Samarco out of action for three years so this story may become a part of the long term rationalisation. BHP has hit a new post-GFC low today but managed to just rally back above it as I write. RIO is also still getting pounded but FMG is flat for no apparent reason. Dalian is still up 1%.
