Last week, we here at the MetalMiner Week in Review told you about how BHP Billiton CEO Andrew Mackenzie immediately went to Brazil to, essentially, say “I’m sorry” about the Samarco iron ore mine disaster that has left 11 dead and more missing.

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BHP Chairman Jac Nasser has since doubled down and said the company has already committed $363 million to rebuild following the tragedy. The “deeply sorry” strategy shows that BHP is not only committed to rebuilding, but wants to make amends for the damage its failed dam has caused and wants to continue to be a part of iron ore mining in Brazil. Read more


Guest contributor James May is director of Steel-Insight.

This is part two of guest contributor James May’s analysis of the iron ore market in 2015. Check out part one, in case you missed it. James is a director of Steel-Insight.

Year-on-year output of iron ore fell in November for the first time. Chinese output in January-February is always significantly lower due to seasonal closures in northern China due to winter weather, but they may not come back if prices stay low. It is our view that Chinese iron ore output in 2015 will be lower by around 20% year-on-year – taking around 80 m tpy (of 62% Fe equivalent) out of the market.

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Therefore, we believe that at current prices, the iron ore market will begin to rebalance in 2015. Now this will not be followed by an immediate increase in prices as inventories accumulated substantially in 2014, but analysts’ projections of surpluses of 150 metric tons are wide off the mark – very simply, where would it be stored given the already-high Chinese inventories?

Why Won’t It Go Below $60/Ton?

Well, we look at 2009 – the last time that prices went this low. Of the majors – Rio Tinto and Vale both cut output (despite still being profitable). BHP Billiton didn’t cut, but we think that might be partially due to the fact that it was trying to takeover Rio Tinto at the time and prove to anti-trust regulators that it wouldn’t “manipulate” the market.

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According to Reuters, by 2015 major producers Vale in Brazil and Tinto and BHP Billiton in Australia will account for 1.15 billion tons or 83% of the world seaborne iron ore trade, quoting Australian government data, up from 71% just three years earlier. BHP expects to produce 245 million tons this year, up 9% on last year and well ahead of expectations. Rio Tinto is boosting output 9% to 290 million tons this year, with talk of a possible rise to 360 million tons in the cards. Whilst Vale is aiming for 312 million tons and produced a record amount in the second quarter through June 30.

The majors’ approach seems to be that prices may be falling but profitability can be maintained by economies of scale. As a result, smaller mines that do not enjoy the same economies of scale are struggling. Reuters points to exports from Iran – the world’s eighth-biggest supplier on the seaborne market – which fell by a third in June from a year ago to just 1.2 million tons and in Australia, Cairn Hill which started in 2010 and produces just 1.7 million tons per annum. Cairn Hill was put into administration when prices of $104 per ton fell below costs.

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Chinese mills have arguably been the biggest losers. Last year those with higher iron purity seemed to be hanging on as steelmakers favored ore that could be used without sintering, but Reuters estimates that at today’s prices some 200 million tons of Chinese domestic production alone is unprofitable and Chinese steel mills use of domestic iron ore was down 40 million tons in Q4 last year.

Unfortunately for smaller miners HSBC is not forecasting a turnaround in price anytime soon, their prediction for 2015 is an average of $105 per ton and for 2016/17 $100 per ton as supply surges on top of 2.8% this year to over 5% per annum in 2015 and 2016

Screen Shot 2014-07-30 at 11.44.50

As this graph from HSBC shows the majors are over taking the minors in driving growth in the second half of this decade even as analysts downgrade steel growth. In HSBC’s case from 2.7% to 2.5% this year and over the longer term 2012-2017 CAGR to 2.7% from 2.9%. Chinese steel demand is seen as maturing and once the current mini stimulus tails off next year the steel market may well slip back into over supply again. The good news for steel makers is iron ore costs are likely to remain depressed with spot prices at or even below $100/ton for the next few years. The knock on effect will be to reduce price inflation downstream even for customers whose steel is sourced from mills not reliant on the seaborne market, spot prices are increasingly becoming a global benchmark.


The world’s second-largest iron ore miner, Brazil’s Vale SA, was temporarily foiled by Brazilian Indians who blocked the railway that gets iron ore from Vale’s Carajas mine to port, Reuters reports.

“Vale did not say how much iron ore had been held up by the protests, which were not directed at the company. The railway, known as EFC, carries close to 100 million tonnes of iron ore a year, or nearly 10 percent of the world’s 1 billion tonnes of seaborne exports…The railway moves a third of Vale’s iron ore output of about 300 million tonnes a year and is being expanded along with Carajas to make up for declining output in Brazil’s central highlands,” according to the report.

The week’s biggest mover on the weekly Raw Steels MMI® was the steel billet cash price, which saw a 12.5 percent increase on the LME to $135.00 per metric ton. This comes on the heels of a 11.1 percent decline the week prior. The 3-month price of steel billet rose 10.0 percent on the LME to $165.00 per metric ton after falling 3.2 percent during the previous week.

Chinese steel prices were mixed for the week. The price of iron ore 58% fines from India hit slightly higher prices this week. Chinese HRC rose 2.9 percent over the past week.

* Get the complete prices every day on the MetalMiner IndX℠

Following a steady week, prices for Chinese coking coal closed flat. The price of Chinese slab increased by a slight 0.6 percent over the past week.

The US HRC futures contract spot price settled at $635.00 per short ton this week after shifting up 0.5 percent. The US HRC futures contract 3-month price fell 0.3 percent to $617.00 per short ton after rising 0.3 percent the week before. US shredded scrap traded sideways last week.

Korean steel prices were flat for the week, and there was no movement for Korean steel scrap. Prices for Korean pig iron remained constant as well.

FREE Download: The latest Monthly MMI® Report – covering the Steel/Iron Ore markets.

The Raw Steels MMI® collects and weights 13 global steel and raw material price points to provide a unique view into global steel price trends. For more information on the Raw Steels MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

It seems as though we’re reporting almost weekly that one commodity boom or another is finished. In fact, actual commodity price volatility may not be as volatile as commodity prognostication volatility.

Nevertheless, here’s the latest installment.

ANZ global head of commodities research Mark Pervan told Australian Mining that “the good phase for low-cost companies BHP Billiton, Rio Tinto and Brazil’s Vale have [sic] finished.

He went on to say, “We have seen a decline in steel prices in China and that is dragging down iron ore prices…even at $US110 to $US120 a tonne there’s little incentive for expanding iron ore production.” The article cited that Citi “believes large miners should behave in an ‘oligopolistic’ manner by holding back supply when demand is down, instead of selling it on the spot market.”

Current Steel, Iron Ore and Raw Material Prices:

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The Biggies – BHP Billiton, Rio Tinto, Vale – are lamenting the end of the commodities super cycle.

Via The Australian: “Over past three months the value of mining service companies has fallen by more than 35 per cent, or a massive $17 billion, in arguably the biggest single sectoral destruction of value since the dotcom crash early last decade.”

Meanwhile, the week’s biggest mover on MetalMiner’s weekly Construction MMI® was the Chinese low price of 62% Australian iron ore fines, which saw a 3.4 percent decline. This comes on the heels of a 1.0 percent increase the week before.

More current ferrous and non-ferrous metal prices:

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ThyssenKrupp, the German steelmaker, looks close to finally off-loading its troubled Steel Americas group, according to a Reuters article.

The new service quotes a spokesman as saying Thyssen aims to reach a deal in the near future and is currently in intense negotiations – principally, it would seem, with front runner Cia. Siderurgica Nacional, or CSN, a Brazilian steelmaker.

The article quotes sources saying CSN has offered $3.8 billion for ThyssenKrupp’s Steel Americas, which comprises a slab processing plant in the US state of Alabama and a 73% stake in Brazilian slab-making mill CSA, the balance 23% being owned by Vale.

If correct, it would bring closure to a brave but ultimately costly venture for ThyssenKrupp which, according to the WSJ, has cost the German group some US$15 billion in losses since 2010.

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Continued from Part One.

Vale already owns the S11 concession, for which it paid some $8 billion, and is planning to spend another $11.4 billion on infrastructure to reach full iron ore production, according to Reuters – an investment beyond the limits of some small states, let alone a single project for a mining company.

current steel prices - MetalMiner IndXThe phrase “putting eggs in one basket” springs to mind, but in Vale’s case the risk is not so much that iron ore demand for steelmaking will not be there to absorb the production, as the project will over-run on costs.

Just Look At Anglo

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grand canyon

Brazilian iron ore projects are Grand-Canyonesque in scope.

The scale of the iron ore mining industry is mind-boggling.

Some 95% by weight of all metals production is in the form of steel, and with the exception of scrap feed for the EAF market in the US and Europe, much of that is supplied as iron ore.

No wonder the seaborne iron ore freight market is taken at times as a bellwether for the global economy – the steel produced is consumed in just about every facet of modern life.

Supply of that iron ore, though, is surprisingly concentrated into not just a few major iron ore mining firms, but even within them into a limited number of major deposits around the world – sufficient enough, it should be said, that there are no major supply risks even when (as now) parts of Australia are hit by cyclones or India goes through its monsoon season.

But only standing at the bottom of an open cast mine and looking at the Grand-Canyon-sized-scale of the operation can one appreciate the sheer scale of global iron ore operations. One such example is Vale’s Carajás Mineral Province in the state of Pará in Northern Brazil.

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The steel billet cash price fell 1.4 percent on Sept. 27, 2012 to $345.00 per metric ton on the LME, making it the day’s biggest mover on MetalMiner’s steel price index. Also on the LME, the steel billet 3-month price declined 1.3 percent to $346.00 per metric ton.

As the China Iron & Steel Association (CISA) conference in Dalian, China, continued, more news has come to light of iron ore output slowdowns. According to the FT, Liu Xiaoliang, executive deputy secretary-general of the Metallurgical Mines Association of China, “told the conference that low prices have forced about 40 per cent of the country’s iron mines to suspend operations.”

China’s drop in steel demand is causing trouble for iron ore and coking coal consumption and prices, a worrisome proposition for the likes of Rio Tinto, BHP Billiton, Vale and Anglo American.

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