The benchmark premium coking coal contract between Japanese steel mills and BHP Billiton Mitsubishi Alliance (BMA) has settled at USD152/t (FOB Australia) for 4Q13.
Commodity prices fell after James Bullard, the president of the Federal Reserve Bank of St Louis, said that the US Federal Reserve may scale back stimulus measures as early as October. Iron ore remained flat at USD131.80/t (CFR China) as markets were shut in China due to the mid-autumn holiday. Thermal coal rose by 2.3% w/w to USD79.5/t (FOB Newcastle).
India may ease rules restricting gold imports for jewellery exporters, but rules to restrict gold imports for domestic consumption still remain in place as the country tries to reduce a record current account deficit.
Iraq’s crude oil capacity is expected to increase from just over 3.6mb/d by the end of 2013 to more than 7mb/d by 2018.
The total number of drill rigs deployed onshore in the US fell from 1,768 to 1,761 last week. Rigs deployed in oil plays rose from 1,361 to 1,369, while rigs deployed in gas plays fell from 401 to 386.
India’s Supreme Court began a hearing last week on the resumption of iron ore mining in the state of Goa, a region that once exported 50–55Mtpa of iron ore, accounting for about half of India’s exports. Goa’s iron ore exports are expected to be capped at 30–35Mtpa.
China’s iron ore miners have called on the Chinese government to reduce a 25% average tax rate if they are to survive in an environment of low iron ore prices. The Metallurgical Mines Association of China said the average cost of iron ore production in China was currently estimated at USD105/t.
SINGAPORE, Sept 20 (Reuters) - Plentiful supply of iron ore may weigh on spot prices next week when Chinese mills return from a long holiday weekend, unless steel demand picks up pace.
Physical trading of iron ore was limited with top market China away for the Mid-Autumn Festival on Thursday and Friday.
Iron ore swaps steadied on Friday after steep gains in the previous session in line with risk assets globally after the U.S. Federal Reserve left its economic stimulus intact.
"We expect more supply availability from the big miners and that could drag iron ore prices lower. Chinese demand is stable but there's just far more material available in the market," said a Singapore-based trader.
Still banking on firm Chinese demand, global iron ore miners are forging ahead with expansion plans.
Rio Tinto loaded the first shipment of iron ore from its expanded annual capacity in Australia of 290 million tonnes earlier this month. The world's No. 2 producer is looking to lift output to 265 million tonnes this year from around 200 million tonnes in 2012.
Benchmark 62-percent grade iron ore .IO62-CNI=SI was little changed at $131.80 a tonne on Thursday, according to data provider Steel Index. It is down 2 percent for the week so far, its third weekly decline in four.
The iron ore benchmark dropped as low as $131.10 on Tuesday, its weakest since Aug. 5.
A sustained decline in Chinese steel prices cut appetite for iron ore this month. Iron ore, the biggest revenue earner for Rio and other global miners such as Vale, has fallen 4.3 percent so far in September after a three-month climb.
Shanghai rebar futures fell for a seventh straight session to hit a seven-week low on Wednesday, just before the Chinese went on break, as steel demand looked slower during a typically strong consumption season.
"If we don't get the strong initial reaction from rebar or strong (spot iron ore) tender prices next week, then probably the swaps market will go back to levels pre-Fed announcement," said Jamie Pearce, head of iron ore broking at SSY Futures.
Iron ore swaps <0#SGXIOS:> jumped on Thursday as commodities and equities rallied on the back of the Fed's decision to stick to its $85-billion a month in bond buys to aid the U.S. economy.
On Friday, swaps were little changed. The November swap contract traded at $128.25 a tonne, traders said, after gaining nearly $3 to settle at $128 in the prior session. (Editing by Tom Hogue)
Japanese steelmaker Nippon Steel & Sumitomo Metal Corp, set its October-December contract price for prime hard low-vol coking coals with Australian miners such as BHP-Billiton Mitsubishi Alliance and Anglo American at $152/mt FOB late Thursday, up $7/mt from Q3 for prime hard grade coals, several sources said Friday.
The price covers premium land low-vols such as BMA's Peak Downs or Saraji and Anglo American's German Creek coking coal. For premium mid-vols such as BMA's Goonyella and Anglo American's Moranbah North HCC, the deal was done at $148/mt FOB, up $6/mt from July-September.
The prices were mostly in line with market expectations, with most participants expecting a breakthrough in the mid-point of $150-155/mt FOB Australia.
Company officials at Nippon Steel and the mining companies either declined to comment or could not be reached Friday.
"It is a good outcome, but it should have been higher," one market source said, adding that Japanese end-users were able to accept the increment in prices due to improved steel market conditions in the country.
However a Japanese source still felt that the number was slightly higher than expected.
When compared with Thursday's spot price, the contract settlement was $0.50/mt lower than Platts Premium Low Vol assessment at $152.5/mt FOB Australia.
The gap between spot and term prices has significantly narrowed in Q4 -- a sharp contrast from Q3 when term was above spot by $15/mt.
An Indian steelmaker welcomed such a trend, saying it was more acceptable for long-term contract customers.
"I feel that this is very close to the market," the source said. "The quarterly system is correcting itself."
The settlement arrangement between Nippon Steel and the Australian miners is expected to be followed by other major buyers and sellers elsewhere. Negotiations between miners and Indian state-owned mills are expected to take place next week, following the Japanese settlement.
No PCI deal has been done yet, sources said. Posco, the South Korean steelmaker that usually negotiates the PCI settlement with Anglo American, was away for a public holiday.
With the increment in prime hard coals, two market sources were confident that PCI would also rise from last quarter. One source estimated the growth to be around $5/mt.
Base metals finished mostly lower despite China’s HSBC flash manufacturing PMI rising above expectations to a six-month high in September. Gold futures continued to decline after James Bullard, President of the Federal Reserve Bank of St Louis, suggested that the US Federal Reserve may taper stimulus by next month. Crude oil benchmarks fell as geopolitical risks eased in Syria and as crude oil production looks set to increase in Nigeria and Libya. Iron ore advanced 0.5% to USD132.40/t (CFR China).
In US economic news, the 'flash' or preliminary PMI eased from 53.1 to 52.8 in September. Across the sub-indices, output accelerated to a six-month high. However, new order inflows from domestic and overseas customers slowed – suggesting production growth is likely to weaken in the fourth quarter.
Pan Pacific Copper, Japan’s largest copper producer, signalled that it plans to increase copper premiums in China by 45% from USD85/t in 2013 to USD123/t in 2014.
Xcoal Energy and Resources, a major exporter of US metallurgical coal, said demand for US coking coal is shaky as US domestic steel production still hasn’t recovered from the recession.
Anglo American plans to resume iron ore exports from its Amapa operations in Brazil by November. This may add close to ~400–600kt of iron ore exports per month to seaborne markets.
China’s imports of iron ore from India lifted 49% y/y to 756kt in August, reflecting an increasing appetite by India to export iron ore as the country tries to narrow a record current account deficit.
Atilla Resources has acquired additional coal leases near its 2Mtpa Kodiak coking coal project in US as the company looks to expand.
Base metals fell on concerns that budget talks in the US may hamper economic growth and commodity demand. Gold futures continued to fall on expectations that the US Federal Reserve may taper stimulus next month following comments by James Bullard, president of the Federal Reserve Bank of St Louis, on 20 September. Iron ore rose by 0.2% to USD132.70/t (CFR China).
Anglo American plans to cut nickel output from its Barro Alto smelter in Brazil to 20–25ktpa until mid-2016 as the company fixes design flaws so that the smelter can produce 36ktpa of nickel.
According to the International Copper Study Group (ICSG), the deficit in refined copper markets grew from 21kt in May to 132kt in June. From January to June this year, ICSG estimates a surplus of 18kt in world refined copper as compared to a deficit of 529kt for the same period last year.
Alacer Gold is expected to decide on expansion plans at its Copler gold mine in Turkey at the end of 2014. The company has agreed to sell its two remaining Australian gold assets.
Indonesia, the world’s largest tin exporter, plans on keeping a rule that enforces tin producers to trade the metal locally before export, in an attempt to add value to Indonesia’s tin sector. Since the measure took effect on 30 August, tin prices have lifted on supply concerns.
China’s LNG imports lifted 55.4% y/y to 1.7Mt in August, while the country’s average price paid rose by 6.8% y/y to USD12.38/mmbtu. Taiwan’s LNG imports fell 12.8% y/y to 1.2Mt in July, while the country’s average price paid declined 11.1% to USD14.76/mmbtu.
China’s province of Inner Mongolia will cut administrative fees and transport charges for local coal miners that are struggling to cope with slow demand and weak prices. The move follows similar steps by the province of Shanxi.
BHP Billiton Ltd has warned of short-term downward pressure on commodity prices, but expects more balanced global growth over the longer term.
Investors were little swayed by the report. At the 1015 AEST official market open, BHP was 0.11 per cent higher at $35.91, against a benchmark index lift of 0.37 per cent.
In the group's annual review, BHP chairman Jac Nasser said the miner maintained a positive outlook over the long term as the fundamentals of wealth creation, demographics and urbanisation continue to create demand for commodities across Asia and other markets.
"Increased supply has, however, exerted downward pressure on many commodity markets more recently and we expect this trend to continue over the short term," he said.
"While lower rates of investment across the industry will ultimately lead to more balanced markets, all resources companies will need to improve productivity and be flexible enough to adapt to change in this more challenging environment."
He reinforced the company's confidence in the future of the fertiliser potash, following its recent commitment to a further $US2.6 billion ($A2.78 billion) investment in its Canadian Jansen Potash Project.
"A growing population and improving incomes in emerging economies means the longer-term outlook for potash, a fertiliser that improves the yield and quality of agricultural production, is strong," he said.
He said the company had performed well in a volatile and uncertain year for global economies.
BHP's net profit fell by 30 per cent in fiscal 2013 to $US10.9 billion and it lifted its full-year dividend by four per cent to $US1.16 per share.
Most of its profits came from iron ore, petroleum and copper.
Mr Nasser said the company's overall safety performance continued to improve but noted that three BHP workers had lost their lives at work during the year.
The mining giant also said it expects more balanced global growth over the long term as China continues to develop its economy and large developed economies, such as the United States, grow despite fiscal challenges.
"We expect the rebalancing of the Chinese economy to be significant in terms of the nature of domestic demand, as well as the types of goods and services the economy will produce," the report stated.
For the current financial year, chief executive officer Andrew Mackenzie will receive a base salary of $US1.7 million, an increase from his previous base salary of $US1.2 million, as well as a pension of 25 per cent of his base salary.
In addition, Mr Mackenzie is eligible for short-term incentives of up to 240 per cent of his base salary, as well as long-term incentives of up to 400 per cent of his base salary, which has a face value of $6.8 million.
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