Find below the iron ore charts for March 4, 2013: Rebar futures are still trading at their lows. It’s a better mix of weakness today with some steel price support as muted demand returns following winter and outright iron ore price falls indicate active destocking at mills which will ultimately cease and reverse.
Iron ore price, steel price and futures published daily
The contemporary seaborne iron ore price first emerged in 2003 when the Chinese development model shifted up a gear. Indian suppliers broke free of an annual contract pricing system that had been dominated by Australia, Brazil and Japan for decades.
As Chinese demand surged, traditional supply and pricing mechanisms could not keep pace. Indian miners in Goa and Karnataka had surplus supply and filled China’s marginal new needs outside the old benchmarking system.
But it still wasn’t enough and other non-traditional suppliers began to emerge in South America and Africa. These needed more dynamic pricing mechanisms and by 2008 Platts, Metal Bulletin and The Steel Index were publishing a daily iron ore price.
As the Chinese demand surge continued, by 2007, major Australian iron ore miners were charging enormous premiums to prices from five years earlier. The annual benchmarking system began to strain to the point breaking, including significant diplomatic tensions between Australia and China. This culminated in a proposed merger of BHP and RIO Tinto which triggered panic in Beijing as it feared an already supply-constrained market and soaring iron ore price would by made worse by monopoly pricing. The Chinese SOE, Chinalco, moved the buy a blocking stake in RIO Tinto.
However, the GFC intervened and deflated tensions as Chinese demand collapsed. But Chinese steel mills found themselves still tied to very high prices and an annual iron ore price benchmark that did not reflect the new reality. Many defaulted on cargoes and walked away from deals.
To fight the downturn, China unleashed an enormous fiscal and monetary stimulus that soon had China building more than ever. The demand for iron ore rocketed to all new highs. With the memory of contract defaults fresh in their minds, major Australian miners, led by BHP and CEO Marius Kloppers, abandoned the annual benchmarks, forcing Chinese steel mills to adopt a short term iron ore price using spot and quarterly contracts. Brazil joined in in 2010.
The spot iron ore price soared to all new highs and triggered a global wave of new supply from producers such as Fortescue Metals Group, Ferrexpo, Kumba Iron Ore, Anglo American and Sino Iron.
With the rise of the short term iron ore price market, iron ore derivative markets grew. First in the Singapore on the SGX and later in China as the Dalian Commodities Exchange and the United States at Chicago Commodities Exchange (CME). Iron ore derivatives could hedge and future price iron ore output.
These last developments coincided with the peak in the China boom and prices began to fall from 2012. After peaking above $190 per tonne, the iron ore price collapsed into the $30s in 2015 as new supply outstripped demand.
Ahead were still many years of oversupply, a lower iron ore price, consolidation and mine closures.
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Mac Bank’s proprietary survey of Chinese steel mills for February is out and shows a little lift for prospects: The February results of our proprietary China steel survey (in which we interview 40 steel mills, 30 steel traders and 30 iron ore traders) has started to show some signs of improvement in sentiment at the
From the SMH, Citi has joined myself and Goldman in the iron ore bear camp predicting a crash to $US80 a tonne within the next two years, and: …Mr Wilkins forecast a 9 per cent fade in Rio’s earnings from 2014 to 2016, saying the lower iron ore prices would offset increased production and cost cuts.
Here’s a neat little snipped from Credit Suisse describing how an iron ore trader would be forced to liquidate his arbitrage play in the iron ore inventories that are fueling the meteoric rise in Chinese port stocks: If the trader paid 20% upfront and borrowed the rest on a 180-day LC at 6-month libor +280bps
UBS’s marvelously named Tom Price (pictured above on recent tour of the Pilbara) has a little note today measuring the impact on iron ore of Chinese authorities attempt to cure Beijing capital of air pollution. China’s dilemma: tighter pollution controls vs. stable economic growth Many expect the govt to manage pollution via steel production cuts,
From the AFR today: Vale, the world’s largest iron ore producer, will maintain cost and capital-spending austerity this year even as the outlook for prices is improving, its chief executive officer said. …His remarks come as Vale reported a net loss of $US6.45 billion in the quarter, its largest since Brazil’s government sold control to
Find below the iron ore charts for February 27, 2014: To my mind this is a dead cat bounce until rebar stops falling. Futures bounced yesterday and are back in contango but I’m not convinced. Reuters has more: “Some mills in southern China are trying to sell part of their cargoes under long-term contracts that
The SMH blog has a chart today showing a recent re-coupling of the Australian dollar and iron ore price: I noted yesterday that there has been a de-coupling of iron ore equities from the price and the renewed flexibility in the currency will be a factor. It is only mitigating, however, not curing, with the
Gina’s Rinehart’s immense gamble is almost ready: Australian billionaire Gina Rinehart’s Roy Hill iron ore project is close to finalising a $7.8 billion financing deal, sources said, a vital step towards an end-2015 start for the giant mine in Western Australia’s iron-rich Pilbara district. The 55-million tonnes-a-year project, which would make Roy Hill Australia’s fourth-largest
Here are the iron ore charts for February 27, 2014: Rebar futures rallied a little as well. Markets again have the feel of an orderly destock. Derivatives are looking for a bottom (fruitlessly in my view) and spot is melting not crashing. The panic is nowhere to be seen. That would give us limited downside
From Mac Bank today: What is going on in China’s property market? High-frequency data on property sales suggest that the recent weakness is more than just seasonality and that the official national sales figures for January-February, due early March, could see a large YoY drop. Daily sales figures are available for major tier-1 and tier-2
From the FT, the battle for survival of those iron ore traders marked for extinction goes on: Imports could continue to climb as iron ore traders take the place of steel traders in providing credit to mills. Traders affiliated with Chinese companies big enough to secure access to bank loans say they are fronting purchases
There’s always an excuse but the message is clear enough, BHP is cutting back less efficient iron ore mines: The trend for companies to manage their own mines instead of hiring external contractors goes on, with BHP Billiton confirming the last contractor working on its Pilbara iron ore mines will be relieved of its duties.
Find below the iron ore charts for February 25, 2013: Less panic today but all red nonetheless. Iron ore spot has more decisively broken support at $120 and 12 month swaps are sitting right on the October 2013 low. Free falling rebar futures fell further to 3307 and are now in backwardation suggesting more weakness
From the China Securities Journal: According to CISA statistics, by the end of early February inventory of the key steel manufacturers amounted to a record high of 16,328,400 tons, up 20.02% MoM. Insiders say due to multiple factors including dropping steel prices, fewer orders and difficult transport, early February saw a sharp rise in steel
From BofAML: Another news which was widely circulated over the past weekend and severely hit markets today was about a mid-sized bank’s decision to halt funding for developers in 1Q14. With some clarification, it’s clear that the Industrial Bank ordered to stop just Mezzanine financing for developers as well as funding for developers’ upstream suppliers
A special evening post for those that trade the iron ore majors SDRs or other overnight markets, from Reuters late today: Chinese steel and iron ore futures on Monday fell to their lowest levels since they were launched following media reports of tighter lending to steel and other property-linked sectors, dimming the outlook for demand. The
Bloomie has a scary report with more details of China’s iron ore for cash scams: Xiao Jiashou, known as the “steel-trading king” in Shanghai, had his assets frozen as China Minsheng Banking Corp. sues for money owed. Lenders seeking repayment are finding irregularities, including the same pile of materials used as collateral for multiple borrowings, China
The World Steel Association has release its January figures and it’s more worrying news for iron ore followers: World crude steel production for the 65 countries reporting to the World Steel Association (worldsteel) was 130 million tonnes (Mt) in January 2014, a decrease of -0.4% compared to January 2013. China’s crude steel production for January
Fine below the iron ore price charts for February 21,2014: This is not a happy technical study. Iron ore is holding but rebar average has breached new lows. Both Dalian six month and 12 month swaps have hit marginal new lows as well, though a more useful observation is that both illustrate descending triangle patterns,
Mac Bank today weighs into the great Chinese iron ore port stocks debate today with a bullish explanation: The apparent destock reported by Mysteel certainly explains the recent price weakness but it contrasts with widely publicised data showing a strong rise in the volume of iron ore inventory being held at ports in China. In
From the FT: In a long mea culpa accompanying its annual results on Thursday, Chang Zhenming, who was brought in to replace Mr Yung as Citic Pacific chairman in 2009, said the “ironic fact” of meeting its first major milestone was that its first shipment from the blighted Pilbara development would dent profits in the near term.
Here are the iron ore charts for February 20,2014: Nothing all that bad here. No technical breakdowns as the falls were modest following the fugly PMI. I can’t improve much upon a quote from Reuters: Weaker steel prices may sour appetite again among traders and Chinese steel producers for spot iron ore cargoes, and likely
From the SMH: It’s not only the region’s sharemarkets and the Australian dollar that are down on the weak Chinese manufacturing numbers, China’s steel futures fell the most in about a month and Dalian-traded iron ore also dropped. The most briskly traded rebar for May delivery on the Shanghai Futures Exchange was down 1.1 per cent
From Mac Bank today: Iron ore inventory held by smaller mills in China has declined sharply over the last month, according to data from Mysteel. Current stocks are reported to be equivalent to 23.8 days of use, down from a recent peak of 29.7 days at the start of January. While this destocking helps explain