Iron Ore

It’s been a wait of about 3 years but Vedanta’s iron ore operation in the Indian province of Goa is finally set to resume exports, mainly to China. After the monsoon ends, other miners, too, are all set to restart mining.

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Representatives of steel manufacturing mills from China’s Jiangsu province and Tangshan area recently visited Goa to discuss the modalities with officials of Sesa Iron Ore, a subsidiary of Vedanta.  Sesa Iron Ore announced the resumption of iron ore extraction at its mine in Codli, 80 kilometers south of Panaji, Goa’s Capital, and once Asia’s biggest iron ore mining site.

Resumption of Ore Extraction

The current environment clearance limit for the mine is around 3 million metric tons a year, scaled down from earlier limit of 7 million metric tons. Before the mining halt, China was the biggest market for Goa’s iron ore. The extraction activity in Goa was stopped after the state government suspended mining leases due to illegal activities. Later, the Supreme Court of India banned it until April 2014. Recently, the Goa government renewed many of the leases, paving the way for resumption of iron ore extraction.

While the Chinese may be back, in Goa at least, and with more capacity added to the overall iron ore stock, the larger question being debated by iron ore analysts and mining companies in India and around the world is – will there be a revival in Chinese demand for ore? Are they back?

What About the Majors?

Mining major Rio Tinto, for example, recently reiterated its claim that Chinese steel production would reach 1 billion tons, soon, and also forecast renewed demand for iron ore and steel from other emerging markets in the next 15 years.

Rio may still have faith in the China growth story but competitors such as BHP Billiton and Fortescue Metals Group think otherwise. A few days ago, BHP said it had lowered its expectations of Chinese steel production.

Like Vedanta’s Goa mines, a few others around the world are preparing to add to the ore supply. India’s Essar Steel, for example, is hurrying up construction in Hibbing, Minn., of a $1.9 billion mining and processing facility.

But what effect will the increase in ore supply have on the already spiraling iron ore prices, globally?

Earlier this year, iron ore prices fell to historic lows. Overall, ore prices have plummeted around 70% since hitting a peak in 2013, hurting big exporters such as Australia. A majority of analysts are of the view that the iron ore mining sector is unlikely to recover anytime soon, especially since the Chinese economy shows no major signs of recovery.

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There’s been a brief rally in iron ore prices sending hopes soaring in some quarters. In the last days of August, Standard & Poor’s revised upward its price “assumption” for the year to $50 from the earlier forecast of US $45 per mt, but added that the imbalance in supply and demand would remain for another two years. Others expect prices to slide later this year and the next, and probably it would stabilize at $50 a year.

The US’ trade gap shrank in July and a big three iron ore miner still has high production ambitions despite low iron ore prices.

Trade Deficit Shrinking

The US trade deficit fell in July to its lowest level in 5 months as exports rose, signaling underlying strength in the domestic economy amid concerns about a global growth slowdown.

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The Commerce Department said the trade gap narrowed 7.4% to $41.9 billion, the smallest since February. When adjusted for inflation, the deficit fell to $56.2 billion from $59.0 billion in the prior month.

The smaller deficit implied a modest contribution to gross domestic product from trade early in the third quarter. Trade added 0.3 percentage point to the economy’s 3.7% annualized growth rate in the second quarter

Data ranging from consumer spending to employment and housing have suggested the economy retained much of its momentum from the second quarter and was on solid footing when global financial markets were rocked by turbulence triggered by worries over China’s economy.

Rio Still Bullish On Iron Ore Production

Rio Tinto Group said on Thursday it will continue to boost iron ore production but had yet to give construction approval for a new mine, Silvergrass, in Australia amid board promises to rein in spending. The mine is essential if Rio is to deliver its long-term  $360 million metric ton global production target. Rio is on track to produce $340 million tons of ore this year.

The global miner said demand for iron ore would continue to grow despite current soft conditions and that half would be delivered via the seaborne market for at least the next 15 years, justifying an increase in tonnage.

Existing home sales are up and a major iron ore producer reported plunging profits and cut its steel outlook.

US Existing Home Sales Surge

US Home resales rose to a near 8-1/2-year high in July, Reuters reported.

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While other data on Thursday showed a slight increase in the number of Americans filing new applications for unemployment benefits last week, the trend remained consistent with strong labor market momentum.

The National Association of Realtors said existing home sales increased 2% to an annual rate of 5.59 million units last month, the highest pace since February 2007.

Demand for housing is being boosted by a strengthening labor market. But supply remains tight, pushing up home prices and sidelining first-time buyers, who are a key part of a strong housing market. The share of first-time buyers fell to a six-month low of 28% last month.

BHP Billiton Reports Profit Plunge, Cuts Outlook

BHP Billiton Ltd. reported full-year profit plunged 52% on tumbling commodity prices and cut its long-term forecasts for steel output in China, its largest customer.

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Underlying profit was $6.4 billion in the year ended June 30 from $13.3 billion a year earlier, the world’s biggest mining company said Tuesday in a statement. BHP will increase its dividend by 2.5 percent to $1.24 a share.

Following our recent article on the seaborne iron ore market, some may assume the landlocked domestic contract supply market for iron ore and pellets is immune from the volatility found in Asia.

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To some extent that’s true, there isn’t a spot or futures market in the same way as we see in Asia, but the market is far from immune to global prices and prices have fallen in North America as they have elsewhere.

That makes Essar Steel’s decision to proceed with the massive $1.9 billion development of North America’s richest iron ore deposit across 150 kilometers of Minnesota’s Mesabi Iron Range particularly brave in today’s market.

Source FT

Source: Financial Times

Essar Steel is said by the Financial Times to be ramping up construction on a $1.9 billion mining and processing facility, with a planned completion in the second quarter of 2016. It will be one of the largest construction projects in North America by capital expenditure according to the paper and Essar hopes to produce 7 million metric tons annually of high-grade iron ore pellets for 70-80 years from the resource. Read more

Just when iron ore miners thought sentiment couldn’t get much worse, Goldman Sachs Group comes out with a report predicting iron ore prices will tumble by 30% over the next 18 months according to a Bloomberg article this week.

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The bank is saying the rebound seen over the last five weeks is merely a blip and that normal business will shortly resume.

Source: FT

Source: Financial Times

Supply growth is set to continue, the report states, but, and this is crucial, China has reached peak steel and from now on steel production will only contract in China.

More Inventory Than Necessary

As shipments pick up from Australia, Brazil and India, the seaborne market will become awash with inventory and prices will be further driven down. Iron ore is seen by Goldman as averaging $49 a ton this quarter, and $48 in the final three months of 2015. Before falling further next year to $46 in the first quarter and $44 the following quarter. With little or no market discipline, the bank suggests 2016 will see average prices around $44 per ton. In the words of the report’s authors “the summer of 2015 is the calm before the storm.”

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Steel consumers can, therefore, expect mills’ raw material prices to continue to weaken as seaborne prices gradually knock on to contract prices elsewhere. With demand lackluster and too much finished steel chasing too few orders, even as markets like North America and Europe show encouraging signs of GDP growth, steel prices will have little to support them this year and next. Good news for consumers, tough times for producers working with low-capacity utilization and stronger domestic currencies sucking in imports.


Two massive explosions damaged a major port in China and with oil prices falling again, US shale producers are looking to make a deal.

Tianjin Explosions Damage Port Terminal

Two massive explosions at the Chinese port of Tianjin that ripped through parts of the terminal have disrupted iron ore import operations, as well as disrupting oil tanker arrivals and departures at this gateway to northeast China.

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The blasts killed at least 44 people and injured more than 500, officials and state-run media said on Thursday.

Crude Oil Prices Bring Shale Extractors Back to the Table

A renewed slide in crude oil prices is having the effect US energy sector dealmakers and private equity managers have been looking for: oil companies are now returning calls from potential buyers. Throughout much of the crude market rout that started in mid-2014 oil firms could rely on generous capital markets investors betting on a quick recovery in prices, which made any asset sales look unattractive.

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Vale SA returned to profitability for the first time in a year today and low prices have led to a copper scrap and concentrate shortage in China.

Vale Posts Profit

Brazil’s Vale SA, the world’s largest iron ore producer, returned to profit in the second quarter, bolstered by higher output and cost cuts as it kept up pressure on Australian rivals in the fight for market share.

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The miner overcame a slump in iron ore prices to report a net profit of $1.68 billion on Thursday, moving into the black for the first time in a year. That was a leap of 17.3%from the same quarter a year ago, and more than four times the average forecast of $408 million of six analysts in a Reuters poll.

Copper Scrap Shortage in China

Chinese copper smelters may not get enough raw material after domestic mines and scrap providers scaled down sales because of low prices, which may force some smelters to trim production in the third quarter, industry players said told ThomsonReuters on Wednesday.

Last Chance for the July Metal Price Forecast

Gold miners saw their stock values plummet with the price of the yellow metal on Monday. BHP Billiton is investing $240 million in its Western Australia iron ore tug boat and port business.

Gold Sell-Off Hits Miners Hard

The steep sell-off in shares of gold miners, tracking a plunge in the metal’s price, wiped out more than $8 billion from their combined market value on Monday and pushed a global index of gold stocks to a six-and-a-half-year-year low.

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The Thomson Reuters Global Gold index slumped 8.5%  to its lowest since late 2008, the biggest one-day percentage drop in two years, after gold prices sank.

BHP Investing in Infrastructure

BHP Billiton said today it will spend $240 million upgrading its marine iron ore facilities in Western Australia. The funds will be used to purchase six tug boats and build a new tug harbor in Port Hedland’s inner harbor, with construction due to be completed in September 2016.

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Home sales surged in May and major producer Australia cut its iron ore forecast further.

US Home Sales Hit 9-Year High

Contracts to buy existing homes in the US rose in May to their highest level in over nine years, boosting the housing market and the broader economic outlook.

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The National Association of Realtors said on Monday that its pending home sales index, based on contracts signed last month, increased 0.9% to 112.6, the highest level since April 2006. Contracts have now increased for five straight months.

Australia Cuts Iron Ore Price Forecast

Australia, on Tuesday, cut its price forecast for iron ore in 2015 by 10% to $54.40 a metric ton, citing a weak outlook for the commodity’s main market, China’s steel sector. The forecast by the Department of Industry and Science is a sharp decrease from the $60.40 per mt predicted three months ago and is way off the $94 a mt touted in January.

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PriceWaterhouseCoopers‘ Mine 2015 Report was good news for India, but cast a troubling picture of the overall global mining industry.

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Dry-fuel miner Coal India Ltd. (CIL) moved up from the 8th to the 6th slot on the list of the largest mining companies in the world in terms of market capital.

A second state-owned company, which was also the country’s top iron ore miner, National Mineral Development Corporation (NMDC), also improved its ranking by coming in 21st, up three spots over the previous year. Read more