Well one analyst is anyway. Liberum Capital released an interesting report to investors last week along the following lines which if correct we felt has some interesting observations for our readers.
Liberum drew initially on the significant falls in mining stocks with the sector down about 19% since May with heavy falls last week in US Steel stocks down 10% and iron ore miners down 6-7%. The catalyst to recent falls appears to be a big drop in thermal coal prices precipitating a wider sell off but particularly in the steel sector.
Some of the key points observed were:
- Traders reporting large stocks of heavy grade plate in the EU with stockholders offering lower prices as stock levels reached saturation level
- Arcelor Mittal admitted it had experienced trouble passing on the May price increase for flat rolled in the US
- GM, Ford, Chrysler and surprisingly Toyota are seeing dramatically lower sales and hence purchases this quarter
- Metal Bulletin reported southern Europe rebar and wire rod sales quiet as a result of the construction slow down which is likely to continue for a year or more. MB also reported FeCr prices down 5% in China due to lower demand
- Coking coal spot prices remain at $350/ton but with some trades down to $300/ton, the market for coking coal is still very tight
- Iron ore sales remain stable at $180/ton in the spot market but inventories in China are very high. With fuel and hence freight rates at record highs the higher FOB prices secured by Rio Tinto and BHP are providing lower CIF prices than Vale’s material shipped all the way from Brazil. Consequently Rio and BHP are tipped as better buy options than Vale
With ferrochrome trading at 2x marginal cost there is little to support a further slide in prices. Likewise vanadium prices are sliding but molybdenum and manganese remain firm, although manganese trades at over 3x marginal cost so any weakness in demand could see a slip in prices.
The conclusion to the report was that share prices for producers in certain commodities are at risk because of the prospects for prices this year. Those at risk were steel raw materials and those considered safe were precious metals, aluminum, copper and nickel. This analysis broadly supports our own reports on these metals over recent weeks.
Our thanks to Michael Rawlinson of Liberum Capital for the reproduction of parts of his investors report