Iron Ore

Rio Tinto has cut its guidance for iron ore shipments and U.S. consumer confidence unexpectedly fell this month.

Rio Tinto Cuts Back Iron Ore Guidance

Global miner Rio Tinto on Thursday cut its 2016 guidance for iron ore shipments by as much as 5 million metric tons after releasing lower third-quarter production data, citing shipping interruptions.

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The downward revision — equivalent to as much as $290 million at current ore prices — comes as the steelmaking commodity stages a recovery on the back of a surprise lift in demand from China.

U.S. Consumer Confidence Falls

Consumer confidence unexpectedly fell to a one-year low in October as Americans soured on the outlook for the economy amid a contentious presidential election campaign.

The University of Michigan preliminary index of sentiment declined to 87.9 from 91.2 in September, according to a report Friday. That was weaker than the lowest estimate in a Bloomberg survey of economists. Long-term inflation expectations declined to a record low.

The Philippines shut down 20 more mines recently, further curtailing nickel exports to China. There’s a chance a major Brazilian iron ore miner will divest some of its assets.

More Filipino Nickel Mines Shut Down

The Philippines has suspended 20 more mines for environmental violations, most of them nickel, a government official said on Tuesday, bringing to 30 the number of mines shuttered.

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The suspended mines account for 55.5% of nickel ore output in the Philippines based on last year’s production, Environment and Natural Resources Undersecretary Leo Jasareno told a news briefing.

Brazilian Iron Ore Miner Looks to Sell

Cia Siderúrgica Nacional SA is considering selling part of its stake in Congonhas Minérios SA, Brazil’s No. 2 iron ore producer, to China Brazil Xinnenghuan International Investment Co., two people familiar with the deal told Reuters on Monday.

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According to the people, the Chinese mill known as CBSteel is interested in buying about 25 percent of Congonhas directly from CSN. They said CSN, as Brazil’s No. 2 listed flat steelmaker is known, would remain in control of the unit, adding that talks are advancing slowly and may not necessarily result in a deal.

OPEC members are now talking about a deal that lasts one year, whether that means curtailing production for that period is still unknown. Australia is attempting to collect $766 million in taxes.

OPEC Deal Could Last a Year

A possible deal to support oil prices by the world’s leading producer-countries may last for one year, the secretary-general of the Organization of Petroleum Exporting Countries said on Tuesday, longer than other officials have indicated.

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OPEC and non-member producers including Russia are discussing a deal to stabilize the market by possibly freezing output, although key details such as the timing and baseline for any deal have yet to emerge.

BHP Vows to Fight Australian Tax Bill

BHP Billiton said it disagreed with Australian tax collectors’ assessment that the miner needs to pay $766 million in back taxes and charges for its Singapore commodities marketing hub, and that it could resort to court action to fight the claim.

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BHP is under investigation by the Australian Tax Office (ATO) for allegedly shifting billions of dollars in iron ore profits through marketing hubs in Singapore, where it operates under an effective tax rate of zero as part of a concessional tax deal.

There appears to be an almost universal expectation that iron ore prices will start to retreat soon, after surging some 62% through April. They have since eased back but are still up 28% on the year.

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Without doubt, much of iron ore’s gains in 2016 have been driven by strong demand from China, with imports up 9.3% to 669.65 million metric tons in the first eight months of the year from a year ago. But prices in Qingdao lost 5.8% in the seven sessions through Wednesday. That was the longest run of daily declines since March and while steel output remains robust, questions are again being asked how much longer prices can remain north of $55 per mt as yet more supply comes on stream. According to the MetalMiner index, finished steel prices have eased this month.

Iron Ore Output

You would expect the miners to refute this and, sure enough, in a Bloomberg report, Vale SA and Cliffs Natural Resources Inc. said that the impact of the new output won’t be as severe as expected and will see the $50 per mt level holding, but banking analysts are not so sure with Westpac saying last month rising supply will drive prices below last year’s lowest point of $38.30, while Citigroup expects an average of $45/mt next year. Read more

India will complete the second phase of its mining auctions later this month, after the first round last year received a lukewarm response. Going under the hammer will be gold, diamond and iron ore mines.

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Mines in five provinces — Karnataka, Andhra Pradesh, Madhya Pradesh, Rajasthan and Jharkhand — will be auctioned. This time, there are 14 iron ore mines, 12 blocks of limestone and one block each of gold, diamond and copper. While some analysts have predicted a better response than last time to the iron ore mining auction, the limestone blocks may not see much action because of the cement market slump.

Round One

In the first round of the auction, the states offered 47 mines bearing minerals such as gold, iron ore, bauxite and limestone.

They were able to auction seven mines in that phase, earning the government billions of dollars over the next 50 years. However, 17 blocks were not sold due to an insufficient number of initial bids on account of factors such as quantity and grade of ore and low quality of the mineralization studies, among other reasons.

The first round also came under scrutiny when the comptroller and auditor general of India (CAG), a body that audits all government expenditures, passed certain adverse observations. It said in a report tabled in the Indian Parliament that competition may have been restricted in the auction of 11 coal blocks on account of multiple bids by corporate groups made through joint ventures or subsidiaries.

What Does This Mean For India’s Steel Exports?

The iron ore auction comes at a time when the Indian government is contemplating a relaxation of export duties on iron ore. This has led to protests from the domestic steel industry.

In a representation to the steel ministry, the Indian Steel Association asked the government to continue with a 30% export duty on all grades of ore, to preserve natural resources for domestic use.

The government already cut the export duty on low-grade fines to 10% earlier this year but continued with a 30% levy on lumps.

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India’s ore production is lagging its growth of steel production. Production, according to steel ministry data, fell at a compound annual growth rate (CAGR) of 6.5% in the past five years.

U.S. Manufacturing contracted in August while China’s imports of iron ore and coal maintained their high July levels.

Manufacturing Contracts in August

U.S. manufacturing contracted last month for the first time since February, as new orders and output plummeted and factories cut jobs.

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The Institute for Supply Management said Thursday that its manufacturing index dropped to 49.4 in August from 52.6 in July. Any reading below 50 signals contraction.

Chinese Ore, Coal Imports Maintain

China’s imports of iron ore and coal remained robust in August, providing a fundamental justification for the ongoing resilience in the price of the two major bulk commodities.

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Although there are several more factors driving prices than China demand, it’s also worth noting that crude oil imports likely slipped back somewhat in August, coinciding with a retreat in the price of global benchmark Brent crude.

Iron ore prices have done an amazing job of defying gravity, the price has risen 41.7% this year after three straight years of losses according to Australia’s Business Insider.

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Prices for 62% fines hit $61.75 per dry ton this week and have averaged $53.64 per dry metric ton this year.

Source: Business Insider

Source: Business Insider

The raw material has variously been called the darling of the commodities market and by Citicorp as 2016’s hot commodity but many are now beginning to ask if enough is enough and just how much support there is for current price levels let alone further rises. Read more

Profits were down at Hong Kong Exchanges & Clearing Ltd. in the first half of 2016 and Rio Tinto and BHP Billiton are fighting an Australian iron ore mining tax.

Profits Down at HKEX in First Half

Core first-half earnings of the Hong Kong Exchanges & Clearing Ltd.’s commodity division slumped by 19% as trade in metals declined while hiring linked to a new spot commodities trading platform in China drove up costs, the exchange said on Wednesday.

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HKEX’s second-quarter net profit slumped 38% as falling trading volumes pushed down fees for buying and selling shares and commodities contracts.

BHP, Rio Blast Proposed Australian Iron Ore Mining Tax

Mining giants Rio Tinto Group and BHP Billiton on Tuesday issued statements attacking proposals for a new Australian mining tax as damaging and unfair. Brendon Grylls, leader of the National Party in Western Australia, has proposed an iron ore levy of $3.86 (Australian $5) a metric ton that would specifically target BHP and Rio.

While demand for iron ore is up in China, the Philippines has shut down its only producer.

Chinese Iron Ore Imports Increase

On July 19th, the iron ore benchmark for immediate delivery to China’s Tianjin port fell by 2% to $55.10 per metric ton, the lowest since July 1st. Chinese iron ore imports rose 8.3% in July from the previous month to hit its second-highest on record, customs data showed on Monday.

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The move followed a significant drop in the most traded benchmark for construction material rebar on the Shanghai Futures Exchange. Demand for the key steel-making ingredient has increased as Chinese steel mills fired up furnaces on the back of higher prices.

Philippines Shuts Down Lone Iron Ore Miner

The Philippines has suspended the operations of the country’s only iron ore miner due to environmental infractions, officials said on Monday, bringing to eight the number of mineral producers halted in a government crackdown.

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The Southeast Asian nation, the world’s top nickel ore supplier, began an audit of all its metallic mines on July 8, shaking global nickel markets as seven nickel miners were suspended for causing environmental harm.

While India’s Tata Steel’s effort to sell its U.K. assets enters its second round of bids, there’s some good news for the company from the other side of the Atlantic.

The provisional government of Quebec in Canada has decided to invest $133 million (C $175 million)  in Tata Steel’s iron ore project in the region between Quebec and Labrador.

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According to an announcement made by Tata Steel Minerals Canada (TSMC), the company’s Canadian subsidiary, it had been awarded the financial contribution to support the development of its Direct Shipping Ore (DSO) Project. The contribution included an equity stake of $95.72 million (C $125 million) through the Capital Mining Hydrocarbons Fund which supported mining activities in the northern region of Québec and a loan of $38.29 million (C $50 million) through Investment Québec.

Canada Supports Iron Ore

Analysts said the equity/loan assistance was aimed at fueling growth in the mining sector in the region and would also create jobs. TSMC, a joint venture, is developing the iron ore project in Quebec. Tata Steel holds a 94% stake in the JV while the remainder is held by the Toronto-listed New Millennium Corporation.

The DSO project involves mining, crushing, washing, screening and drying the run-of-mine ore, and is expected to produce 4.2 million tons of sinter fines and pellet feed a year.

The finished product will be transported to Sept-Îles, Québec, from where it will be shipped to Tata Steel Europe’s steelmaking facilities.

With the Canadian government’s equity infusion in TSMC, Tata Steel’s stake will come down though it’s not yet clear how much. The Quebec Government’s financial package is in line with a similar financial package proposal by the U.K. Government for Tata Steel’s Port Talbot operations, aimed at rescuing the British steel industry.

Port Talbot Still on the Block

Last week, CNBC TV 18 reported that Tata may keep the Port Talbot unit. Quoting unnamed sources, the report claimed Tata Steel is likely to sell off downstream units in Rostherham, Hartlepool and Stocksbridge, instead. Each of these operations have a 100-million-metric-ton production capacity and together employ about 3,000 workers. Management buyout firm Excalibur and Indian-origin businessman Sanjeev Gupta’s Liberty House are said to be in the fray for the assets of the other operations.

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Tata had written down the value of its U.K. steel assets to almost zero and was also exploring a merger of its European business — including its profitable assets in the Netherlands — with German peer ThyssenKrupp.