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Daily Iron Ore Price, Commodities and Precious Metals Update - August 2014
Topic Started: 4 Aug 2014, 01:35 PM (8,697 Views)
Elastic
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And the slowdown in Chinese property may have only just begun. If construction really slows down then the iron price could plummet. They would be stuck with a massive glut.
Interesting to watch. Terms of trade is suffering but still not much effect on the $Aus.
Only a rat can win a rat race.

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CBA Commodities Daily Alert 26-Aug-14

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Newmont ends arbitration with Indonesia

Newmont Mining has withdrawn its arbitration claim against the
Indonesian government, allowing the company to start copper
production and exports from its Batu Hijau copper and gold mine.
The company said it will develop an Indonesian copper smelter with
Freeport McMoran and take part in supply agreements with two
Indonesian companies that will process the copper ore locally.
Newmont filed for international arbitration in June after being unable
to reach an agreement with the government after Indonesia
implemented a mineral ore export ban in January and a rising export
tax on copper concentrates.

Aluminium rose after Alcoa, the largest US aluminium producer, said
it was permanently closing its high-cost 150ktpa Portovesme
aluminium smelter in Italy. Gold futures advanced on safe-haven
demand as tensions escalated between Ukraine and Russia. US WTI
crude oil rose on demand hopes after US consumer confidence in
August and orders for US durable goods in July beat forecasts. Iron
ore fell by 0.3% to USD88.90/t (CFR China).

Antaike, a Chinese state-backed research company, estimates that
China’s refined copper imports will reach ~3.2Mt this year, implying a
flat growth rate in y/y terms. The company expects refined copper
imports to slow through 2H14 as refined copper tied up in financing
deals is released into the market as scrutiny escalates on financing
deals after a fraud was detected earlier this year.

Chilean copper miner, Antofagasta, estimates a copper surplus of
150kt in 2014, down from an earlier estimate of a 400kt surplus. The
company believes there will be a small surplus in 2015 before
markets balance in 2016.

Member mills of the China Iron and Steel Association (CISA) –
typically between 80% and 85% of China’s total steel capacity –
produced an average of 1.83Mt/d of crude steel from 11-20 August,
up 0.5% from the first 10 days of August.
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Spot iron ore hits near 2-year low on supply glut

Tue Aug 26, 2014 6:47pm IST
By Manolo Serapio Jr

SINGAPORE, Aug 26 (Reuters) - Spot iron ore prices hit their lowest since September 2012 on Tuesday as swelling supplies weighed, while China's Dalian iron ore futures rebounded after a six-day slide that dragged the price down to the lowest level since last year's launch.

Benchmark 62 percent grade iron ore for immediate delivery to China .IO62-CNI=SI fell 0.3 percent to $88.90 a tonne, the lowest in nearly two years, according to data compiled by Steel Index.

Demand from China, which buys around two-thirds of the world's iron ore, remains firm, as shown by its strong imports of 82.5 million tonnes in July, the third highest monthly volume on record.

But the market is awash with the raw material used to make steel.

Iron ore for delivery in January on the Dalian Commodity Exchange closed up 0.8 percent at 648 yuan ($105) a tonne. The most active contract fell to 639 yuan on Monday, the lowest since the Dalian bourse launched the futures last October.

Top miners such as Vale, Rio Tinto and BHP Billiton remain bent on boosting supply, convinced their low-cost business model will prevail over higher-cost producers, including those in China.

But China's raw iron ore output has continued to increase, with production in January-July up 9 percent at 849.4 million tonnes, according to government data released this month.

While many small and medium-sized Chinese mines have shut down, their total output "accounts for only a small part of the aggregate production", said Cao Bo, an analyst at Jinrui Futures in Shenzhen.

"Besides, a lot of new mines came to operation in the past half year. The newly released capacity replaced those that were shut down," he said.

While offers for seaborne iron ore cargoes in the spot market remained high, bids were scarce and some sellers were waiting for prices to bounce back, traders said.

"Traders are having difficulty selling because their existing stocks were bought at higher prices. Some traders are trying to sell their cargo and some are holding back," said a Shanghai-based iron ore trader.

In steel, the most traded January rebar contract on the Shanghai Futures Exchange rose 0.3 percent to end at 2,979 yuan a tonne after falling to a record low of 2,961 yuan in the previous session.

Read more: http://in.reuters.com/article/2014/08/26/markets-ironore-idINL3N0QW1YJ20140826
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As Commodity Prices Slide, Big Miners Seek a Sustainable Strategy

Richard Martin
8/25/2014

Navigant Research’s report, Renewable Energy in the Mining Industry, summed up the state of the global mining business: “In the last decade, increased demand from countries such as China and other emerging economies pushed the price of many metals and minerals upward, which stimulated investment in the mining industry. More recently, the global economic downturn and the collapse in a number of metal and mined commodity prices forced the mining industry to scale back investment into new mine sites, reduce operating mine lives, and scale back their investment into more capital expenditure-heavy renewable energy.”

Since that report was published in the fourth quarter of last year, commodity prices have stumbled further, and the pressures on mining giants like Rio Tinto, BHP Billiton, and Vale Brazil have intensified.

On the surface, so to speak, it’s a great time to be an extractive company with worldwide operations in iron, copper, coal, and other minerals that are essential to the functioning of the modern industrialized economy. The rise of China and India has created a seemingly bottomless well of demand, particularly for iron ore for steelmaking; technological advancements have cut the costs of large-scale mining operations (while eliminating thousands of well-paying jobs); and governments in places desperate for economic growth, such as Mongolia and sub-Saharan Africa, have proven pliant to the demands of multinational mining corporations.

The Bottom of the Well

Rio Tinto’s profits in the first half of 2014 doubled from the same period a year before. BHP Billiton made $13.4 billion in profits in the 12 months leading up to June 2014. Brazil’s Vale, the world’s largest producer of iron ore, reported second quarter profits of $1.43 billion – slightly below Wall Street estimates but still a healthy increase over the year before.

A closer look, though, shows that big miners are playing a risky and ultimately unsustainable game. The term of fashion in the mining industry today is “de-diversification,” as mining companies sell off low-margin mines that they invested in during the commodities boom of 2002-2008, before the global financial systems crashed and growth in China ground almost to a halt. To keep profits up, the companies are slashing costs and adding new production – a short-term strategy that could spell long-term disaster.

Rio Tinto’s results “showed that the strategy of carving into costs while ramping up volumes that are being pursued by the major miners has worked to offset commodity price declines,” wrote Stephen Bartholomeusz in the Australian business publication, Business Spectator. “The key question – worth billions of dollars – is whether it will continue to work.”

Twilight In the Mines

Ultimately the dilemma facing miners of low-margin commodities like iron and coal is that as economies like China’s and India’s develop, they need less basic stuff. It takes less iron to make an iPhone than it does to assemble an airliner. Despite slowing demand, Vale plans to double its exports of iron ore to China over the next 5 years. Pumping more iron and coal into markets that need less of them is not a winning strategy over the long run. Goldman Sachs analysts have estimated that the rate of growth in the supply of iron ore is 3 times the rate of growth in demand. That’s a recipe for a glut and a price crash. Already, iron prices are on a downward slide.

Asian iron ore spot prices have fallen 31% this year, according to Reuters, and “the consensus is that they will remain below $100 for the foreseeable future as big miners such as BHP, Anglo-Australian rival Rio Tinto and Brazil’s Vale ramp up output even as Chinese demand growth weakens.”

As with coal, iron ore could be entering a downward spiral that could overwhelm the major miners as they narrow their focuses: “Iron ore risks becoming another coal,” remarked Reuters’ commodities columnist Clyde Russell, “where miners pursue output gains in order to lower costs, but in the end the resulting supply surplus just depresses prices even more, resulting in a no-win situation for producers.”

Like the coal era, the age of iron and steel is nearing its twilight. That’s not good if you’re a multinational mining outfit.

Read more: http://www.forbes.com/sites/pikeresearch/2014/08/25/as-commodity-prices-slide-big-miners-seek-a-sustainable-strategy/
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miw
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Quote:
 
Ultimately the dilemma facing miners of low-margin commodities like iron and coal is that as economies like China’s and India’s develop, they need less basic stuff. It takes less iron to make an iPhone than it does to assemble an airliner. Despite slowing demand, Vale plans to double its exports of iron ore to China over the next 5 years. Pumping more iron and coal into markets that need less of them is not a winning strategy over the long run. Goldman Sachs analysts have estimated that the rate of growth in the supply of iron ore is 3 times the rate of growth in demand. That’s a recipe for a glut and a price crash. Already, iron prices are on a downward slide.


Low margin commodity? Rio, BHP and Vale are getting nearly 50% gross margin even at $89. That is not a low-margin commodity.

Low margin for Fortescue perhaps.
Edited by miw, 27 Aug 2014, 04:21 PM.
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Iron ore may test 2012 low as futures retreat, China buying stalls

Wednesday, 27 August 2014 10:25
Posted by Shoaib-ur-Rehman Siddiqui

Iron ore futures in China and Singapore fell on Wednesday and buying interest for imported cargoes remained tepid, piling more pressure on spot prices that have lost a third of their value this year and are near two-year lows.

Spot iron ore breached $89 a tonne on Tuesday to its lowest since September 2012 and a sustained retreat would bring prices closer to levels last seen in 2009 as growth in supply outstrips demand by China, the world's top buyer of the commodity used to make steel.

Iron ore for January delivery on the Dalian Commodity Exchange was down half a percent at 643 yuan ($105) a tonne by midday, falling for a seventh session in eight. The price fell to a contract low of 639 yuan on Monday.

The September iron ore contract on the Singapore Exchange fell 0.6 percent to $88.92 a tonne.

Benchmark 62 percent grade iron ore for immediate delivery to China <.IO62-CNI=SI> slipped 0.3 percent to $88.90 a tonne on Tuesday, according to data compiled by Steel Index.

Some analysts in a Reuters poll in July had predicted iron ore to weaken to as much as $80 a tonne during the third quarter. The commodity fell to as low as $86.70 in September 2012.

The price of iron ore - the top revenue earner for miners Vale, Rio Tinto and BHP Billiton - has struggled to recover since falling below $100 in May in the face of a supply glut helped fueled by increased output from the big three producers.

Morgan Stanley has projected a global supply surplus of 79 million tonnes this year, 158 million tonnes in 2015 and 256 million tonnes in 2018.

Many Chinese steel mills are buying iron ore only in small quantities to meet immediate needs and they prefer the cheaper stocks lying in China's ports against fresh seaborne cargoes, said an iron ore trader in Tianjin.

"Mills and end-users are pushing prices down because the economic outlook is not optimistic. Credit is also tighter and I expect iron ore to drop further to between $80 and $85," he said.

More signs of weakness in China's property sector that emerged this month spurred the recent decline in steel and iron ore prices and more indications of slower economic growth distressed markets further.

The most-traded rebar for delivery in January on the Shanghai Futures Exchange was up 0.1 percent at 2,978 yuan a tonne, not far above a record low of 2,961 yuan touched on Monday.

Spot steel prices in China have also been declining, with billet in the key Tangshan area dropping by 70 yuan a tonne since the weekend to stand at 2,560 yuan on Tuesday, Standard Bank said in a note.

Poor steel pricing has kept Chinese traders from replenishing stockpiles which stood at 12.47 million tonnes as of Aug. 22, the lowest since December 2012, according to data from industry consultancy Mysteel.

In contrast, steel inventory among mills has risen as producers sustained high production rates, adding to excess supply that has similarly weighed on prices.

Stockpiles of steel products among large Chinese mills stood at 15.25 million tonnes as of Aug. 20, up from 14.57 million tonnes in the first 10 days of August, according to the China Iron and Steel Association (CISA).

Daily crude steel output of China's large steel mills rose 0.5 percent over the Aug 11-20 period from the previous 10-day period to reach 1.8295 million tonnes, CISA said.

Read more: http://www.brecorder.com/markets/commodities/asia/190684-iron-ore-may-test-2012-low-as-futures-retreat-china-buying-stalls.html
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India to turn big importer of iron ore in FY15

Mahesh Kulkarni
August 27, 2014

After losing its status as the third-largest exporter of iron ore a couple of years ago, India is likely to turn a big importer of the key steel-making raw material by the end of this financial year. The country is likely to import 10 million tonnes (mt) in FY15, three times its previous record, 3 mt, in 2012-13.

Unstable domestic production, increase in royalty rates and lower prices in the global market would contribute towards increasing imports. Domestic production has been steadily declining from a high of 220 mt in 2009-10 to 150 mt in FY14.

Companies that will import iron ore or pellets are JSW Steel, Tata Steel and Bhushan Steel. JSW Steel, which has already announced its plans of importing 6 mt in FY15, is considering options to increase it further, two officials said.

Tata Steel, facing difficulty in the production of ore at its captive mines, has imported 1.5 mt in the first four months of the current financial year. It is likely to import more. Bhushan Steel has imported pellets.

"The advantage for India is it has large resources. But given the current developments in the mining sector, the production is at lower levels. We are importing because of lower prices. But it is not feasible to keep importing in the long run," said Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel.

The domestic production continues to be uncertain given the slow pace of reopening of mines in Karnataka and Goa. In Odisha, of 26 mines ordered for closure by the Supreme Court, eight have managed to get permission to restart. In Jharkhand, the production is likely to be lower than a year ago’s. "Under the current circumstances, it is viable to import iron ore," said Ritesh Shah, lead analyst (India materials) at Espirito Santo Securities, an investment banking and securities firm.

In Karnataka, the steel industry requires 36 to 40 mt a year, while the production is 20 to 21 mt a year. This has forced JSW Steel to depend on imports. It needs 22 mt a year for all its three plants in Karnataka, Maharashtra and Tamil Nadu. The company is planning to import 35 per cent of its total requirement this year, Rao said.

The consumption of imported ore has its benefits for steel mills. The ore has less alumina and silica, so the consumption of coke and fuel is less, leading to 20 per cent higher recovery of steel, said Basant Poddar, vice-chairman, Federation of Indian Mineral Industries. He said for this, the steel sector might increase imports. Spot prices are $90 a tonne and analysts say these will go down $5-10 a tonne by January. This is largely due to the slowdown in demand in China.

The Chinese steel mills have started importing through their joint ventures from Australia, which has put pressure on the prices, said Prakash Duvvuri, head of research at OreTeam Research, Delhi-based iron ore research firm.

Vinod Nowal, deputy managing director at JSW Steel, said the company has to pay an additional cost of Rs 2,000 a tonne for imported ore compared to the domestic ore. "Though we have to pay more for the imported ore, the recovery of steel is higher because the ore contains 64 per cent Fe and very less amount of impurities like 1 per cent silica compared to 4-5 per cent in the domestic ore. The alumina is also less in imported ore," he said.

Read more: http://www.business-standard.com/article/markets/india-to-turn-big-importer-of-iron-ore-in-fy15-114082700879_1.html
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Atlas to slash and burn in WA.

http://www.watoday.com.au/business/mining-and-resources/atlas-slashes-costs-after-iron-ore-slump-20140828-109iz7.html
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Goldman (at the start of this year) estimates that around 20% of Chinese iron ore production may close over the period 2014-15, but that total domestic production will only decline by around 9% in raw ore terms once new supply is taken into account.

The displacement of marginal Chinese production over the period 2014-15 will not be sufficient to balance the market, and some seaborne capacity will also be forced to close over the next two years,” Goldman said.

“In our view, the market will remain balanced in the short term, but we expect seaborne supply to start overtaking demand during Q2 2014,” Goldman said.

And from the above graph it looks like some high cost producers closed and some others increased production. Even with a 10% drop in Chinese Production and a 10% increase in demand it will not absorb the huge ramp up in production in Brazil and Australia. I can not see any of the big three reducing their market share so the price should continue downward.
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CBA Commodities Daily Alert 27-Aug-14

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Iron ore falls to USD88/t (CFR China)

Iron ore declined by 0.8% to USD88.20/t (CFR China) on surplus
concerns as Chinese steelmakers continue to draw down on iron ore
inventories in preference to purchasing iron ore on the spot market
as iron ore availability remains high.

Base metals were mixed, despite demand concerns growing as
consumer and business confidence weakens in Europe. Gold futures
fell on weaker investor demand. US WTI crude oil fell despite US
crude oil stocks falling more than expected last week.

Indonesia’s energy and mineral resources ministry has said that its
negotiations with Newmont Mining regarding conditions before the
company resumes operations at its Batu Hijau copper and gold mine
are still ongoing. The government said it still requires agreement on
royalties and further details of plans to work with Freeport to
construct a copper smelter in Indonesia.

Rio Tinto has offered aluminium premiums of USD420/t to Japanese
buyers in the December quarter, which is ~9% lower than the
USD460/t premium being offered by RUSAL. The aluminium premium
was set at USD400-408/t for Japanese buyers in 3Q14. Nearly all of
the aluminium purchased in the market is priced at the LME
aluminium price plus the aluminium premium.

US crude oil inventories fell by 2.07mmbbl to 360.5mmbbl in the
week ending 22 August, above forecasts of a 0.94mmbbl decline. In
the same week, US crude oil production rose to 28-year record high
of 8.631mb/d, while imports increased to 7.633mb/d. The US refinery
utilisation rate rose from 93.4% to 93.5%.
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