Iron Ore

As the new year dawns, we turn our eyes toward the metal markets of 2017. Will the bull run of 2016 continue? What will be the standout performer of the metals we track? Will New Coke finally make a comeback as Even Newer Coke? Only to re-reintroduce Coke Classic in all its aluminum-encased glory? We have predictions. Lots of them.

Steel on Wheels

That’s right, the North American steel market is picking up steam and chugging toward expanded production and renewed profitability for many of the companies we track. Contributor James May said this week that flat products will enjoy higher demand while hot-rolled coil capacity will expand thanks to a combination of new capacity going online (Big River Steel‘s plant is set to open) and the trade policies of the incoming Trump Administration.

Iron Ore Overseas

China consumes over 70% of the world’s seaborne iron ore and a strong year for the Chinese economy bolstered the steelmaking raw material from from $40 per metric ton to $70/mt in global markets last year, an increase that helped re-energize the bottom lines of mining majors Rio Tinto Group, Vale SA, BHP Billiton and Fortescue Metals Group.

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This week, Sohrab Darabshaw pointed out that that was cold comfort to smaller miners in India who are still hamstrung by high export taxes and can’t get their ore into China or other lucrative world markets. That could change soon, but MetalMiner Co-Founder Stuart Burns was even more cautious, reminding us that physical iron ore prices were influenced by a rampant futures market last year.

Source: Adobe Stock/Geargodz

“The interplay of the futures market, physical demand from steel mills, and seaborne iron ore supply has too many variables to predict 2017 and ’18 with any certainty,” he said.

Trumping Trade

While some of the markets are still murky, one thing we all agreed on this week was, once Donald Trump is installed as President of the United States, 2017 certainly won’t be boring when it comes to international trade. Read more

After more than four years of languishing, some hope’s been rekindled in India’s iron ore mining sector.

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Ore production jumped 22% between April and October, according to figures released by the government. Iron ore production stood at 100 million metric tons during the resurgence, against 81 mmt during the same April to October period a year ago. What’s brought even more cheer is the news that exports, too, jumped 9 times their previous level, to 9 mmt from last April to September, as compared to 1 mmt, the same period last year.

Export Taxes

With a steep price hike in global markets aided by protectionist measures for the domestic steel industry, will India see a resurgence in iron ore exports? Not so fast.

India has plentiful iron ore stockpiled but taxes are holding up exports. Source: Adobe Stock/nikitos77.

The protectionist measures imposed by India’s government previously included an export duty tax of 30% on high-grade iron ore. Many within the mining sector are of the opinion that the export tax must go, or at the very least be reduced, to boost exports. Read more

By anyone’s reckoning, iron ore and coking coal had a stellar year in 2016. Driven by infrastructure investment and a robust construction market, Chinese imports of our iron ore could top 1 billion metric tons for the first time in 2016. Prices more than doubled in the space of 12 months and the supply-demand situation seemed to be largely in balance for much of the year.

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After topping $80 per mt in early December, prices eased back a little toward the end of the year prompting many to ask “have we seen the peak in iron ore prices?” Mills typically cut output during the quieter winter months when construction demand slows. Many steel mills have already curbed output due to chronic smog alerts across northern China.

Chinese Demand

Seasonally, it would not be unusual if iron ore prices remained subdued up to the Chinese New Year and then picked up in preparation for the peak production months of late spring and summer. But, while Chinese demand defied many expectations of a slowdown in 2016, the recent softening of both iron ore and coking coal raw material prices, and the price of some finished steel products over the last week or 10 days, has lent support to some analysts’ predictions that we could be seeing markedly lower Iron ore prices throughout this year and next. Read more

In recent weeks the Dalian and Zhengzhou commodity exchanges and the Shanghai Futures Exchange have all toughened trading requirements several times.

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The measures imposed include raising trading margins, hiking transaction fees and imposing trading limits in attempt to tamp down speculative trading. Reuters’ Clyde Russell referred to the situation as China having “thrown the world’s commodity producers and traders a massive party.”

HRC and CRC prices in China continue to rise. Source: MetalMinerIndex

HRC and CRC prices in China rising through November. Source: MetalMinerIndX.

This year saw most analysts surprised by the strength of both China’s coal and iron ore imports, which led to rallies in the prices of both commodities. Chinese imports of iron ore jumped to the third-highest on record in November with 91.98 million metric tons up 13.8% from the previous month, taking the year-to-date gain to 9.2% compared with the same period in 2015, according to Reuters. Read more

While this year’s spectacular rebound in iron ore prices has been a godsend for the world’s biggest miners, it has not gone high enough for smaller, less-efficient producers that still have pits shuttered and equipment idle.

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The price of the steelmaking material has nearly doubled in 2016 to above $80 a metric ton, a boon for miners such as Vale, BHP Billiton and Rio Tinto which extract the material at a cost of less than $20 per mt.

ABI Limps Out of 2016

Coming off a modest increase after two consecutive months of contraction, the Architecture Billings Index recorded another small increase in demand for design services. As an economic indicator of construction activity, the ABI reflects an approximate nine to 12 month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the November ABI score was 50.6, essentially unchanged from the mark of 50.8 in the previous month. This score reflects a slight increase in design services (any score above 50 indicates an increase in billings).

It seems like a bizarre question when iron ore has been on a bull run this year and coking coal producer Glencore has just agreed first-quarter contract prices with Nippon Steel that are the highest since 2011.

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But Morgan Stanley, in its 2017 Outlook, takes a bullish stance on base metals but forecasts bulk commodities such as iron ore and coking coal will do no more than tread water next year. Trying to call a peak in any market is, at best, a stab in the dark, but coking coal spot prices appeared to be easing just as contract prices set a new near-term record. Read more

Liquid Molten Steel IndustryOne Australian miner is requesting Chinese steel mills pay a premium for its highest grade iron ore, a move that experts say will revive the once dormant pricing war.

According to a report from Reuters, Rio Tinto is the world’s No. 2 iron ore miner and demand from Chinese steel producers was at a six-year high when the annual pricing system collapsed. Iron ore supply issues are expected to reignite tensions between miners and mills over pricing.

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“The steel market is so hot this year and they think it’s something that buyers can accept,” an anonymous source told Reuters. “If Rio gets it, other miners may follow.”

It is reported that Rio is looking for up to $1 per ton more than the index price for its Pilbara iron ore product on long-term contracts from Chinese mills for the year ahead. Rio was previously selling iron ore at a premium exclusively to traders.

Steel Prices on the Rise in Asia

Our own Stuart Burns recently wrote that the Asian market has seen steel prices rise due to much of the same dynamic that has pushed steel prices higher domestically. These movements suggest the trend will remain up for the remainder of the year.

How will steel and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

Tata Steel’s Canadian subsidiary recently signed definitive agreements with Resources Quebec and Investment Quebec, the investing arms of the provincial government for investment of $92.46 million (125 million Canadian dollars) in equity and $36.98 (50 million Canadian) dollars in debt, giving an 18% stake in Tata’s Canadian susbsidiary to Resources Quebec.

Free Download: The November 2016 MMI Report

Tata Steel Minerals Canada (TSMC) is a joint venture between Tata Steel and Canada’s New Millennium Iron Corp. It will start mining iron or in Quebec, Newfoundland, and Labrador Peninsula, and set up multiple processing facilities, including a beneficiation plant.

After the transaction is completed, Tata Steel and New Millennium’s iron or stakes will be reduced to 77.68% and 4.32%, respectively.

The deal aims to advance development of the Direct Shipping Ore (DSO) property, which straddles the border between Quebec and Labrador, with mineral deposits on both provinces.

Tata Steel Group has invested over $1.35 billion (1 billion Canadian) in the direct shipping ore project to date.

Tata Steel Executive Director, Finance and Corporate, Koushik Chatterjee was quoted saying the investment signaled the Government of Quebec’s cooperation in supporting sustainable development in line with the objectives of its Plan Nord Initiative.

After inking the deal, Tata is positive it will lead to increased production, improving cost competitiveness and the development of the mineral deposits in Quebec.

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Tata said the project — which involves mining, crushing, washing and drying the run-of-mine ore near Schefferville, Québec, — will produce 4.2 million meric tons of sinter fines and pellet feed annually.

The finished product will be shipped to Tata Steel Europe’s steelmaking facilities.

The development of natural gas and hydrogren technologies is a focus of research at Voestalpine AG‘s new DRI hot-briquetted iron ore facility near Corpus Christi, Texas.

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“We are hoping to run blast furnaces with hydrogen instead of coal and coke,” said Dr. Wolfgang Eder, Voestalpine’s chairman and CEO. “Development of such technology will take a 20-30-year time frame, but I am convinced we’ll hit that target.”

yoders_voestalpine3_550_110116

This blurry “art shot” of Voestalpine’s 450-foot HBI production facility signifies that this will be a “think piece” about research, smog and environmental sustainability. Or Jeff took this from the bus. Jeff seriously took this from the bus. Source: Jeff Yoders

Natural Gas and Natural Hydrogen

This isn’t the first time we’ve heard about the potential of converting natural gas (the fuel material for Voestalpine’s iron ore reduction tower) to hydrogen to decarbonize dirty production processes. Voestalpine’s head and environmental heart certainly seem like they’re in the right place, but what might be advantageous, for the U.S. and South Texas, is the jobs that that research will bring. Read more

The tight oil and natural gas story here in the U.S. is often framed as a struggle between environmentalists who want to keep it — and other fossil fuels such as tight oil — in the ground, and drilling and exploration companies who want to sell it as a home heating and transportation fuel that at least burns cleaner than coal.

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What’s often left out of the discussion is the advantages gas can provide for plants, factories and other major industrial users that have nothing to do with the light switches in your house or apartment.

Voestalpine's reducing tower

Voestalpine’s 450-foot-high direct reducing tower near Corpus Christi, Texas, takes iron ore pellets and reduces them to 91% iron briquettes. Customers include steel suppliers for BMW and Mercedes-Benz. Source: Jeff Yoders

Austria in Texas

Last week, I toured Austrian specialty steelmaker Voestalpine AG‘s new $1.4 billion, direct-reduction hot-briquetted iron (HBI) production facility near Corpus Christi, Texas. It’s estimated that company’s investment will generate an estimated $600 million over the next decade and the new facility has already added 190 jobs to the local economy.

HBI, or sponge iron is a pre-material used in steel production. The new Texas facility takes iron ore pellets that are roughly 60% iron and reduces them down to HBI that is 91% iron. They use a high-temperature, natural-gas fueled furnace tower, now the tallest building in South Texas at 450 feet, to “reduce” oxygen and other impurities out. Read more