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Iron ore - supply and demand rides again
Topic Started: 30 May 2014, 03:23 PM (44,287 Views)
miw
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newjez
23 Jun 2014, 01:34 PM
The part about the "scandal" adds little - just tells us what we have known about for some time, the part about the flooding of the market by the big players to drive out the minnows is interesting. It's been mooted here on APF a few times but it's the first time I've seen "confirmation" in the MSM.
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Sober
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miw
23 Jun 2014, 01:54 PM
The part about the "scandal" adds little - just tells us what we have known about for some time, the part about the flooding of the market by the big players to drive out the minnows is interesting. It's been mooted here on APF a few times but it's the first time I've seen "confirmation" in the MSM.
Just curious: do you have any sense whether the Chinese ore sources are hopelessly compromised in marginal cost terms? Or are they debt-laden creatures which could become profitable after a bankruptcy workout and an operations makeover? (I realise there's no one pat answer to that, but am curious about your overall sense of the state of play, from within China.)

If the latter, BHP, Rio, and Vale will just end up playing whack-a-mole.
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miw
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Sober
23 Jun 2014, 11:33 PM
Just curious: do you have any sense whether the Chinese ore sources are hopelessly compromised in marginal cost terms? Or are they debt-laden creatures which could become profitable after a bankruptcy workout and an operations makeover? (I realise there's no one pat answer to that, but am curious about your overall sense of the state of play, from within China.)

If the latter, BHP, Rio, and Vale will just end up playing whack-a-mole.
I really don't know. I do know that a lot of coal mines have borrowed a lot of money on the shadow banking market, but have no idea of the capital structure of iron ore mines.

I do know that the ore mines in China produce a product that is mostly not much above 20% Fe, and that the percentage is getting worse over time. That is, the marginal value per tonne is dropping. Once you get below a certain value, though, you get to a grade of ore that China has almost unlimited amounts of.

So the price of iron ore is almost like a buffered solution. Once you drop below about $110-$120/tonne you make mines currently producing about 1100Mt/annum (of 20% Fe) uneconomic. Once you get above some figure ($150/tonne? $180/tonne?) you make it uneconomic for China to import any iron ore at all because they have their own resource.

The price can get outside of those bounds for a while (months on the low side, years on the high side) but not forever.

My instincts say whack-a-mole. Mines change hands, and they can be temporarily shut down, but they don't disappear.

By the way I worked in Weipa for a while when the price of Bauxite dropped below economic cost of production back in the 1980s. The mine did not shut down. It went from 3 shifts to one shift, and the beneficiation plant was shut down for a portion of the time, but it was kept ticking over waiting for the recovery.
The truth will set you free. But first, it will piss you off.
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miw
24 Jun 2014, 12:18 AM
My instincts say whack-a-mole. Mines change hands, and they can be temporarily shut down, but they don't disappear.

Hmm, my reaction to your overall post is a bit different (but I hasten to add, just from a different set of assumptions, not any deprecation of your analysis).

The Australian/Brazilian majors appear to have an achievable meta-stable pricepoint in the $110-120 range which usefully constrains a marginally-profitable ongoing domestic Chinese iron-ore production capacity without introducing "strategic" domestic unavailability concerns for the Chinese.

Something like that, anyway.
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miw
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Sober
24 Jun 2014, 12:52 AM
Hmm, my reaction to your overall post is a bit different (but I hasten to add, just from a different set of assumptions, not any deprecation of your analysis).

The Australian/Brazilian majors appear to have an achievable meta-stable pricepoint in the $110-120 range which usefully constrains a marginally-profitable ongoing domestic Chinese iron-ore production capacity without introducing "strategic" domestic unavailability concerns for the Chinese.

Something like that, anyway.
Yeah. If you can keep it at that price, you can probably make sure no new mines open up in China. Unless they work out a good cheap process for magnetite. of course.

My guess is they won't come up with a good cheap process for magnetite, but also that the price will fluctuate above and below the metastable price.
The truth will set you free. But first, it will piss you off.
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Foxy
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Zero is coming...

What is the cost of freight??
Peter
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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miw
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Mustapha Mond
24 Jun 2014, 01:56 AM
What is the cost of freight??
Peter
How long is a piece of string? Depending on the current drybulk rates from WA to Tianjin it could be anything from $7/tonne to $30/tonne.

Right now it is somewhere near the bottom of that range.
The truth will set you free. But first, it will piss you off.
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Sober
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miw
24 Jun 2014, 01:23 AM
Yeah. If you can keep it at that price, you can probably make sure no new mines open up in China. Unless they work out a good cheap process for magnetite. of course.

My guess is they won't come up with a good cheap process for magnetite, but also that the price will fluctuate above and below the metastable price.
"Fluctuate", sure.

But not based on,and not far from, the fundamentals of the foreign oligopolists' supply-cost equations, unless that good cheap process for Chinese-domestic magnetite actually turns up.

In other words, there might well be temporary financially-driven fluctuations based on the ebb and flow of Chinese banking regulation, or the Chinese economy in general, but it sounds like the seaborne iron ore market may actually steady-up for awhile.
Edited by Sober, 24 Jun 2014, 02:04 PM.
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Foxy
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Zero is coming...

http://www.abc.net.au/news/2014-06-24/bhp-confirms-job-losses/5545820


But how did Foxbat know??

Peter
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newjez
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Mustapha Mond
24 Jun 2014, 01:16 PM
Apart from the fact that it was bleedingly obvious, I assume you know someone in bhp. Where was your post predicting this BTW? I can't see it?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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