The ferrous complex stalled again on July 27, 2021 as spot fell, paper too and steel as well, finally: The culprit was yesterday’s news that China will likely impose new restrictions on steel exports, which adds to a long line of regulatory efforts to dampen iron ore prices. My view is that each is pretty
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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China has been progressively tightening the noose around iron ore for months now. With some success given recent falls in iron ore prices. Measures so far have included: Releasing strategic reserves. Punishing speculators and limiting futures bidding. Constraining steel output which will lower iron ore imports so long as the curbs are wide enough to
The ferrous complex was OK on July 26, 2021 as spot firmed and paper held. Steel has not updated: In other data, Chinese mills are restocking which is typical for this of year. Port inventories lifted to 129.5mt: This will aid prices while it lasts. But the reasons for concern are still there. Steel output
TSLombard with the note. Last September, Xi Jinping surprised the world by announcing two ambitious climate goals: that China would reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060. Beyond the headline carbon objectives, the green initiative is an important domestic tool to bolster government efforts to centralize political power and allocate
China’s Three Red Lines policy for deleveraging property developers has pushed the largest and most highly geared to the edge of extinction. Everngrande is fighting on, pulling every string that it can: At least two of Hong Kong’s biggest lenders are reconsidering halts on mortgages for China Evergrande Group’s unfinished properties, after the decisions were
The ferrous complex stabilised on July 24, 2021 with spot up slightly and paper too. Steel has not updated: Since January, I have held a “sell the rallies” position for iron ore. I am now moving to an outright “sell” position. There are five reasons. First, there is early evidence that this time it is
The ferrous complex was half-hammered on Thursday 22, 2021 as iron ore gave way, paper kept falling overnight but steel jumped again: The same explanation is on offer from Reuters: Chinese iron ore futures fell for a fourth consecutive session, down more than 7% to their lowest levels in nearly three weeks, on prospects of
Check out this fantastical piece of speculation by Gordon Johnson of GLJ research: WHAT’S UP? While Evergrande’s bonds and equity trended up in the China Thursday trading session on news it resolved an issue with the bank that froze its accounts, this is PEANUTS in the grand scheme of things – while Evergrande has $107bn of B/S
The ferrous complex was weak on July 21, 2021 as spot pukes, paper puked harder but steel is firm: This despite a turn high in Chinese port restocking to 127.3mt: So far this week, China’s attempts to breaks the nexus between capped steel output and higher iron ore prices may be working: Benchmark iron ore
Evergrande. Remember the name. The Chinese megadeveloper is rapidly morphing into some kind of Chinese ‘Lehman Brothers moment’. The Three Red Lines policy that is designed to deleverage large developers has triggered this latest round of crisis. Evergrande is preposterously leveraged with its equity worth less than 10% of enterprise value, owing to huge debts
Vale is out with its Q2 production report. According to Bloomie, it’s a disaster: The world’s second-largest iron producer churned out 75.7 million metric tons in the second quarter compared with the 78 million-ton average estimate among analysts tracked by Bloomberg. The result was still up from both the previous three months and the Covid-impacted year-ago period.
The ferrous complex was mixed on July 20, 2021 as spot fell, paper fell further overnight but steel lifted: This divergence between steel and iron ore is what China is attempting to engineer. Via Reuters: “Currently, the biggest variate to affect steel prices is crude steel output control policy … which is gradually being implemented
The ferrous complex was soft Friday 16 July, 2021 as spot eased, paper too but steel was stronger (though note that the gains were over a few days): As warned last week, whenever the price approaches the $220 level, out comes the jackboot, from China over the weekend: “We will coordinate with relevant departments to
RIO’s Q2 productio report: Pilbara operations produced 152.3 million tonnes (Rio Tinto share 126.9 million tonnes) in the first half of 2021, 5% lower than the first half of 2020 due to above average rainfall, shutdowns to enable replacement mines to be tied in, processing plant availability and cultural heritage management. Ongoing COVID 19 restrictions
The ferrous complex was strong on July 15, 2021 as Chinese data was received well. Spot jumped, paper more but steel has not updated: The strength is being widely reported as resulting from weak Chinese data lifting hopes for stimulus. The opposite is true. The data was good and there is no more stimulus coming
UBS with the note: China steel mills restrictions could result in ~75Mt less iron ore demand in 2H… Press reports suggest China is imposing more restrictive measures on steel production in 2H21 to ensure output is lower y/y and to meet carbon emissions goal. MySteel reports Baowu is drafting its own plan to cut volumes
The ferrous complex was mixed on July 13, 2021 as spot prices fell and paper firmed overnight. Steel has not updated: The big news was Chinese trade data for June which was very weak in terms of iron ore imports for the second straight month at 89.42mt: This is pretty strange data. Sure, volumes are
The ferrous complex responded only modestly to China’s RRR cut which tells us something about sentiment. Spot and steel were firm and paper soft: In news, there are some bearish signals appearing at the margin. In India, which has been the marginal supplier over the past six months, prices are now falling: Mining major NMDC
The ferrous complex was mixed Friday July 9, 2021 with daily weakness giving way to evening strength as markets jumped on Chinese credit news. Spot was down, paper up overnight and steel flat: Friday evening’s better Chinese credit data and RRR cuts have not altered my immediate outlook. I still see Chinese growth slowing through
The ferrous complex was firm again yesterday on post-CCP party restocking. Spot lifted, paper fell overnight but steel is strong: In news, NDRC is revving up for scrap: China plans to increase its use of steel scrap by 23% to 320 million tonnes by 2025 and to increase production of recycled nonferrous metals, in an
The ferrous complex was strong on July 5, 2021 as spot firmed, paper went nuts and steel lifted: Reports suggest that this is owing to more steel output after the 100 year CCP birthday party: “As Tangshan resumed production, short-term demand will return to pre-centenary level,” analysts at SinoSteel Futures wrote in a note, adding
From Xi Jinping last week: China’s strongman leader Xi Jinping has threatened a “wall of steel” will confront any country that tries to bully his rising power. Thousands of comrades cheered President Xi as he struck an aggressively nationalistic tone during a major speech on Thursday to mark the 100th anniversary of the Chinese Communist
Evergrande should perhaps be rebranded Lessgrande. As it lurches daily from one debt crisis to the next, it is shrinking at a marvelous rate. Bloomie: Total borrowings fell 15% from March to $88bn by cutting land buys, doing fire sales and selling businesses. EGR needs to cut debt to $54bn by 2023 to meet the
The ferrous complex was firm on June 30, 2021 as spot lifted and paper followed. Steel has not updated: There are a number of marginal signals suggesting weakness creeping in. The China steel PMI is steadily softening, especially new orders at 34.8: Grade spreads are widening as well: Prices of lower Fe grade iron ore
Two points to make. Short-term, land sales are a key leading indicator for property development and iron ore. Currently cratering. Long-term, you will know that China’s iron ore era is over for real when a land tax is fully enacted. Mizuho with the note: The government used to rely on administrative measures (such as home
The ferous complex was weak yesterday for no apparent reason as spot fell, paper fell more overnight and steel eased: Perhaps it was yesterday’s Twitter assault by Westpac Robert Rennie which made a good case for a major price correction in H2: 2.Steel prices have dropped sharply from May record highs. Indeed, rebar down 18/20%