That’s from Deutsche Bank today.
We joke, we joke. A little. Deutsche had of course already joined the commodities-supercycle-is-dead chorus, and this note is not from the commodities side but by Asia chief economists Taimur Baig and Jun Ma. Read more
It was supposed to be one of the best trades of 2013 – buy mining stocks to get leveraged upside to the global economic turnaround. But as we approach the end of the first quarter, only one half of that equation is working. The world economy is recovering strongly but the big miners are being well and truly left behind – Australian Financial Review.
Yep, the miners as a ‘leveraged play on global growth” is not going exactly to plan: Read more
Having tracked (with some glee) last year’s gut wrenching slide in the iron ore price…
… it’s high time we made a few observations on the recent dizzying ascent of the steel making commodity. Read more
After languishing well below $100 for much of August and September, spot iron ore is back in the $110+ range and not far from the $120 ‘floor’, albeit with a few hiccups of the last couple of days… So what’s going on? Here’s a theory we find plausible. Read more
It’s not a great choice, if you’re in China. From Reuters today is confirmation that Baosteel has suspended production at a Shanghai plant that has capacity to make 3m tonnes a year of steel.
“The government’s infrastructure investment may only improve sentiment … I don’t expect a big lift in steel demand,” Zhang Dianbo, assistant president of Baosteel, told reporters at an industry conference in Dalian on Thursday.
Behold, some wondrous news for iron ore producers across the globe.
From Business Spectator: Read more
Exhibit 1: From Caijing on Wednesday:
“The whole steel market has already collapsed in August, because any steel maker, including Baosteel (600019.SH), would make a loss at a such [low] price levels,” Wu Xichun, the honorary chairman of the China Iron & Steel Association, told a weekend conference.
It used to be an accepted fact that China’s appetite for steel and steel’s main ingredients — primarily coking coal and iron ore — would continue to rise sharply, not just in absolute terms but at an accelerated pace.
Annual steel consumption had been expected to rise from 2011′s 680m-plus metric tonnes to 1bn metric tonnes by 2020. This forecast has been a mainstay of many China-related predictions for some time, particularly in the mining sector. It was still being cited by BHP Billiton in March, even while the miner’s head of iron ore surprised many with a bearish tone. Since then, however, the world’s two biggest miners began to back away from it and this month Rio Tinto is talking about 1bn tonnes of steel by 2030 — a hazily far-off date. Read more
We looked at both steel production and iron ore prices a few times last month, because it became clear that they were not adhering to the “$120/tonne price floor” theory that has been widely accepted for the past couple of years. And… they’re still not.
Nomura’s Matthew Cross and Ivan Lee have produced this chart to underline their argument that one should look to steel profits rather than the iron ore cost curve to predict near-term iron ore prices moves. Which we’d characterise as: it’s problematic to look only at the supply-side in forecasting commodities prices. Read more
Iron ore prices have breached the $120/tonne floor in recent days, something that most analysts expect can’t be sustained for very long (for reasons explained here yesterday).
Or… can it? Read more
We related last week a forecast from Nomura that iron ore was going to keep falling, and probably more steeply, as it tends to follow Shanghai rebar futures (the most-traded steel futures) and those have plummeted of late. It looks like spot iron ore prices are indeed catching up (or down) with rebar, and that’s taken iron ore below the critical $120/tonne mark.
Why is $120 important? Because of the cost curve. This comes up a lot in the world of iron ore, so it might be worth revisiting what that means. Read more
Shanghai rebar, the most-traded steel futures contract, hit a 2012 low last week and is showing little sign of letting up. Are iron ore prices — already bumping around near the $120/tonne floor — about to follow rebar?
Nomura says, probably: Read more
Having just looked at the prospect of a flat (at best) steel consumption growth rate from China, the next question for many will be: what does this mean for iron ore? Because pretty much all of the projected increase in iron ore demand is expected to come from China:
Even if you don’t buy the once-popular assertion that China needs more of just about everything to meet its growing economy, zero growth in steel consumption might seem pessimistic, given that rural Chinese are still moving to cities in large numbers.
Nomura analysts Matthew Cross and Ivan Lee looked at China’s urbanisation rate and concluded that it can keep progressing at its current pace for years without needing an increased rate of steel consumption. In fact, they argue that China’s annual steel needs won’t increase at all in 2012 and 2013 — and that’s with new government stimulus. Read more
So what is this great new Chinese stimulus that world markets are becoming solely increasingly reliant upon for a regular fix of optimism?
Two things that we know so far… sort of: Read more
Something is up with China’s steel production. It reached record levels in March, driving up expectations of rising coking coal and iron ore prices. As the FT and Reuters have reported, there are accounts of both thermal coal and iron ore shipments being deferred or even defaulted on, and prices of both commodities have fallen 12 per cent since the beginning of April. To an extent, China’s steel production growth has also slowed: April’s production only increased 1.9 per cent compared to a year earlier, versus March’s rate of 2.5 per cent compared to a year previous.
So why is China still producing steel at relatively high rates? There are a few theories. Wood Mackenzie says that even very thin margins are enough to keep privately-owned steel mills operating, while the state-owned operators had no incentives to stop production. The research house also says about 58 per cent of Chinese steel is typically used for construction. Read more
Here’s a bearish take on what the post-stimulus, rebalancing Chinese economy will mean for demand of steel, copper and aluminium:
Adjusting to a new paradigm: We see a no/low growth scenario off what is now a very high base level of demand as a realistic rather than a disaster scenario Read more
A BHP executive’s comments about Chinese steel demand growth flattening have gone viral, with lots of market reports pointing to Ian Ashby’s words to explain European markets closing lower yesterday and falling Asian stocks today.
From the Australian Financial Review: Read more
Not quite 24 hours since China took the tarpaulin off the lowest growth targets since 2004, with an emphasis on consumption etc and woah, Credit Suisse’s Dong Tao has come over all epochal:
We believe the golden age of infrastructure investment is behind us now. The golden age of housing boom is behind us now. The golden age of export is behind us now. The golden age of policy stimulus is behind us now.
Presenting, just another Wednesday working afternoon at a Chinese 5,800 cubic metre blast furnace factory:
An Indian government-backed group that won rights to mine Afghanistan’s biggest iron ore deposit has sought $7.8bn in state aid and loans to develop the venture, Bloomberg says, citing two people with direct knowledge of the plan. The Indian steel ministry is said to be backing the proposal by the Afghan Iron & Steel Consortium, which comprises seven companies led by state-owned Steel Authority of India (SAIL). The ministry will seek approvals from the foreign and finance ministries, they said, without giving a timeframe. The consortium was last month awarded the rights to mine three out of four blocks of Hajigak, a series of rugged mountain ridges 100km west of Kabul which hold an estimated 1.8bn tonnes of ore.
Earlier this week we looked at the rebound (of sorts) in China’s iron ore imports pricing from $120/tonne to almost $140/tonne, when much of the data was pointing to a deceleration in demand. At the same time, port stocks seemed to be building rapidly:
In November, China’s PMIs signalled contraction, house prices fell in most cities, and inflation fell sharply. Trade, we learned over the weekend, is down down down. And as the FT notes, prices of petrochemicals, especially naphtha, are falling in a way not seen since the 2008.
And yet, as Bloomberg reports, demand for iron ore imports surged in November having plunged in October. Read more
Chinese steel mills have started to cut their production as tighter credit conditions and a cooling real estate market bite in the world’s biggest steel market, pushing the cost of iron ore to a 15-month low, the FT reports. The price of the iron ore in the spot market plummeted on Tuesday to the lowest level since July 2010, dropping a hefty 7.2 per cent – the biggest one-day drop in more than 26 months – to $128.50 a tonne, according to pricing agency Platts. Iron ore prices have fallen more than 30 per cent over the last six weeks. The rapid drop has opened a huge gap between spot prices and quarterly contracts, pushing Chinese steelmakers to demand a renegotiation of contracts. Traders said that some steelmakers were threatening to walk away from their contracts if miners refused to accept lower prices for October-December.
Remember when Vale and BHP, two of the world’s biggest iron ore miners, changed their pricing contract methods with China and Japan?
The move from annual to quarterly contracts came amid resurging Chinese demand for iron ore, which put the miners in a powerful position. Read more
As their chief executives gather in Paris on Monday for the annual meetings of the World Steel Association, the steel industry is bracing for falling prices as buyers delay orders because of nervousness about global economic weakness, says the FT. Behind the gloom are worries about the build-up of government debt in the US and Europe, coupled with the sense that the eurozone crisis could be about to worsen in the wake of a default by Greece.
There are concerns about Chinese demand too as inflationary pressures have forced Beijing into cutting back on the supply of credit, slowing the growth of steel consumption in China. The country has been the chief locomotive in driving up the expansion of the global industry. The composite share price of all the world’s listed steel makers has underperformed global stock markets by 30 per cent this year, and a survey for the FT by six industry experts suggests growth in world steel shipments is set to slow to 4.9 per cent next year after a likely 6.6 per cent this year.
China is underreporting the amount of steel it makes by about 40m tonnes a year – roughly the amount made by Germany, the FT says. Detective work by Meps, a UK steel consultancy, indicates that Chinese steel output last year was 672m tonnes – nearly half of the world output – as opposed to the 627m tonnes reported by the Chinese authorities. The underreporting has been corroborated by several industry participants, including one of the three big global iron ore producers, and provides insights into the recent high prices for the main raw material used by the world steel industry.