Daily iron ore price update (RIO backstab)

The ferrous complex was soft on Friday 8, April:

Chinese demand for steel remains disastrous:


But output is still rising:

Perhaps a hint of displaced exports from the Ukraine war reaching China.

On that front, the news is actually better than feared:

Ukrainian miner Ferrexpo managed to find buyers for the majority of its iron ore during the first quarter of the year, using rail and barges to transport material to the country’s western border.

The London-listed company said it had sold 2.6mn tonnes of pellets, small balls of the steelmaking ingredient, in the three months to the end of March, a performance described by analysts as surprisingly strong.

With the port of Pivdennyi in the south-west of the country closed, Ferrexpo said it had used railways and rivers to get its product to Ukraine’s western border and to its customers in Europe.

“Our operations and local communities are outside the main conflict zones within Ukraine, enabling us to continue our activities, including the delivery of iron ore pellets to customers in Europe via rail and barge, which have historically represented approximately 50 per cent of sales,” said Jim North, chief executive.

Ferrexpo operates three mines in central Ukraine, about 350km east of Kyiv. The company’s biggest shareholder is Ukrainian businessman Kostyantin Zhevago, who owns a 50.3 per cent stake.

Its shares rose 10 per cent to 184p on Friday but are still down from 300p at the start of the year. The company is valued at about £1bn.

In the days following the Russian invasion in February, the company issued a force majeure notice — a legal step used when a contract is broken because of circumstances beyond a company’s control — on its seaborne exports from the Black Sea port of Pivdennyi.

At that time there were also fears that Ukraine’s rail network would be disrupted and the company would be forced to stockpile pellets at its mine, close to the city of Horishni Plavni.

Those concerns have not been borne out, with the company able to continue its activities and get its product to steelmakers in Europe.

“Despite the horrific conditions in [the] country, Ferrexpo operations admirably continue,” said Ben Davis, analyst at Liberum. “This implies that it has been operating at 70 per cent of capacity during March, with only 100 tonnes of inventories built.”

Total production in the three months to the end of March was 2.7mn tonnes, down just 11 per cent on the previous quarter, while the company’s net cash position rose to $159mn, up from $117mn at the end of December.

If were to translate across the sector (much of it is in the same region)  it would mean only a loss of 5mt from export markets. Plus whatever volumes Russia cuts, which should also be helped by shipping more to China.

It’s still very foggy but the direct iron ore impact may be closer to 10-20mt than the 50-60mt feared.

It’s another worrying sign as we head into seasonal weakness and growing fears of global recession led by China.

Longer-term, the price future is in no doubt thanks to the great RIO backstab:

Rio Tinto controls half of the Simandou deposit, which spent years in limbo because of disputes over ownership rights and the large investments required to extract and transport the ore. The project could have big implications for the iron ore market — Rio’s share of the deposit could deliver more than 100 million tons a year of the highest-quality ore, just as most in the industry expects demand to plateau.

Australia says thanks RIO, thanks for nuthin’.

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