From the CBA today: Prices cut as cost deflation and new supply outweigh healthy demand We downgrade iron ore prices across our forecast horizon. Falling Chinese production costs, relentless growth in new cheap seaborne supply and slower growth in Chinese pig iron output relative to crude steel combine to weigh on the iron ore market even as Chinese and global
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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Reuters has more on yesterday’s blather surrounding the proposed West Pilbara development: Chinese steel giant Baosteel Group is counting on slashing the A$7.4 billion ($6.90 billion) cost estimate for the West Pilbara Iron Ore project in Australia to justify building a new mine, rail and port that will add to a global glut of iron ore. Baosteel Resources, working with
Here are the iron ore charts for July 30, 2014: Equilibrium persists across markets. The BDI cape is still becalmed. Reuters has texture: Iron ore would need to see aggressive restocking by Chinese mills for the price to break out of its current range, said Graeme Train, analyst at Macquarie Capital Securities in Shanghai.
From Bloomie: Iron ore is heading for the biggest monthly increase this year on speculation that demand for imports in China may be improving, helping to absorb a global surplus as local supplies in the largest buyer are displaced. Ore with 62 percent content delivered to Tianjin rose 0.6 percent to $US95.90 a dry tonne yesterday, according to data from The
From Reuters: Aurizon Holdings Ltd , which teamed up with Chinese steel giant Baosteel to gain a 50 percent stake in the West Pilbara Iron Ore project in Australia, expects the port and rail cost to come in well below a 2012 estimate of A$4.6 billion ($4.29 billion). “We can’t quantify it at the moment.
Sino Iron is slowly raising its output but has a long way to go: Hong Kong-listed Citic Pacific has shipped 1mn t of iron ore concentrate from its Sino Iron mine in Western Australia as it continues its slow production growth following its first shipment in early December. The Sino Iron project hit the 1mn t
The last starter of Australia’s major projects, Gina’s Roy Hill, appears to be making cracking progress: The Roy Hill iron ore mine has hit a milestone, reaching the construction halfway point. The mine has been ramping up progress at the site since the successful completion of a US$ 7.2 billion loan facility in March, which was the biggest
The iron ore miners are off to the races again today despite Chinese markets reversing course. Dalian and rebar futures have both fallen at the open, down 1% and 0.7%, and the news flow is mixed as well. Westpac’s China consumer confidence index is up but the internals softer:: The head-to-head comparison with the business surveys implies
Here are the iron ore charts for July 29, 2014: We’re all green today with physical chasing paper markets higher. Rebar futures joined the party. The BDI cape remains becalmed. Reuters has texture: “The sentiment towards the second half for China has really improved but we still believe that the stimulus we have seen is
The media loves it, but this one goes in the totally irrelevant category. From the AFR: Australian iron ore miners are playing with the structure and dating of contracts for the ore in a bid to lessen the impact of big discounts being forced on them by Chinese buyers. …Instead of continuing to set prices
This one was always in the deep hopium category. From the ABC: The company proposing a new iron ore mine at Nowa Nowa says it will have to re-evaluate the economics of the project. Eastern Iron had hoped to export the ore from Eden but the owner of the bulk wharf facility, South-East Fibre Exports (SEFE),
The Wall Street Journal has a story today on the sudden and steep rally in Chinese shares, especially large developers: As China’s real-estate market slows, investors are turning bullish and buying up stocks of large property developers, betting they won’t only ride out the storm but also grow. The MSCI China Real Estate Index, which
Singapore was closed yesterday so there is no spot or 12 month derivative prices. Dalian 6 month iron ore futures jumped 1.5% to 689 yuan: The BDI cape fell a little more to near record lows and rebar futures didn’t do much. Stimulus hopes seem to be winning over fundamentals at the moment and there’s not much
Via Forexlive, China Securities Journal reports on the price monitoring center of the National Development and Reform Commission: Chinese economy is expected to improve further in the second half of 2014 Inflation is seen stable – full year CPI growth estimated at around 2.3% Said the PBOC should not boost overall liquidity any more via
Here are the iron ore charts for July 25, 2014: Paper markets bounced. So did spot. It appears largely to have have been driven by the news that port stocks saw a solid draw down on the week, 1.25 million tonnes, to be slightly less ridiculous. That may suggest that despite the destock that’s underway
Eureka Report’s Tim Treadgold gives me a serve today for being bearish on iron ore: If the iron ore price has fallen by more than 40% over the past two years why are the biggest producers of the steel-making material continuing to expand production? …Managers in most other industries can only dream about producing a
From Goldman today on Atlas Iron full production update: On balance, we believe AGO has delivered a disappointing 4Q14 result. Production/shipments beat – AGO pre-announced FY14 shipments of 10.9mt, beating guidance (10.2-10.7mt) and our estimates (10.6mt). Inmtoday’s result we gain comfort that it was underlying 4Q production of 3.1mt (GSe 2.6mt) delivering the beat, rather than
In 1987, following the sharemarket crash, I approached my grandpappy, who was a cunning businessman with a large share portfolio, and asked him how depressed he was feeling about his lost wealth. He laughed long and loud. “Share market crash” he guffawed. “My boy, that’s for the birds.” He was a long-term investor, you see,
From The West: Rio Tinto is working on plans to build the biggest single pit iron ore mine in the Pilbara, filing environmental applications for a 70 million tonne-a-year monster at its Yandicoogina operation. …The documents suggest the Pocket and Billiard South pit would be about 7.5km long and nearly a kilometre wide. Rio told