iron ore price

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.

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.

US construction spending rose in July to the highest level in over 7 years as private construction outlays surged, providing another sign of solid economic momentum at the start of the third quarter.

Construction spending increased 0.7% to $1.08 trillion, the highest level since May 2008, the Commerce Department said on Tuesday. June’s outlays were revised up to show a 0.7% increase instead of the previously reported 0.1% gain.

Meanwhile, the monthly Construction MMI® – tracking the key industrial metals used in the construction sector – registered a value of 69 in September, a decrease of 4.2% from 72 in August, another all-time low.

Construction_Chart_September-2015_FNL

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Construction spending has increased for 8 straight months. Economists polled by Reuters had forecast construction outlays rising 0.6% in July. Construction spending was up 13.7% compared to July of last year.

Chinese Oversupply

Still, no matter how much the US construction sector booms – both residential and non-residential construction are hitting multiyear highs – prices are staying low mostly due to oversupply and a sharp decline in Chinese demand.

Read more

The monthly Raw Steels MMI® registered a value of 52 in September, a decrease of 5.4% from 55 in August.

Raw-Steels__September-2015In July, it seemed like steel prices were stabilizing for awhile, but prices fell again last month. The decline wasn’t as bad as it could have been, considering that last month China’s stock market sell-off continued and some industrial metals took serious hits.

The bearish commodity environment makes it hard to pick a bottom, proving once again that buying on weakness hasn’t been the best strategy for metal buyers during this market cycle.

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The Real Steel Story

Fundamentally, the steel story is similar to other base metals and can be summarized as: a glut of raw materials everywhere and weak demand unable to keep the market in balance, with China being the main driver on both sides of the equation. Read more

The monthly Raw Steels MMI® registered a value of 55 in August, a decrease of 1.8% from 56 in July.

Raw-Steels_Chart_August-2015_FNL

After Chinese steel prices slumped in July, they fell again in August but were at least more stable. Domestic prices remain low but seem to be stabilizing as well, resulting in our raw steels index dropping by less than 2%. That’s a moral victory for steel these days.

Paring the Decline

This was definitely a small decline compared to what we have seen from other industrial metals last month. Aluminum and copper hit 6-year lows. Not only was July a bad month for base metals, it was also bad for any commodity. Gold and oil prices fell 7% and 22%, respectively. With all these declines, the Thomson Reuters/Jefferies CRB Index hit new lows last month.

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Apart from this macro commodity weakness, the fundamentals within the steel industry don’t look much better. Chinese demand seems to be getting worse. Construction data shows that demand from the sector has slowed during this first half. Also, the automotive sector is weakening with vehicle sales falling year-on-year for several months. Read more

The construction MMI® fell again in July, despite strong US non-residential construction and accelerating growth in Europe.

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Metals and energy commodities, such as oil and liquid natural gas, continue to fall on international indexes mostly due to the weak economy and lax demand in China, the world’s second-largest economy. The recent volatility in Chinese stock markets shows no sign of abating.

Construction_Chart_August_2015_FNL

The private Caixin/Markit manufacturing purchasing managers’ index (PMI) for China dropped to 47.8 in July from 49.4 in the previous month.

Chinese Economy Still Falling

That is worse than the preliminary reading of 48.2 and is the fifth consecutive month of contraction in the sector. With falling demand in such a large market, it is difficult to foresee a turnaround in the metals that make up our index. The Construction MMI® registered a value of 72 in August, a decrease of 2.7% from 74 in July.

While construction activity is strong in the US and Europe, emerging markets and China continue to drag down prices and overproduction of materials for export is actually exacerbating oversupply.

Try Not to Catch Falling Knives

The oversupply in aluminum, in particular, is worsening. Alcoa, Inc., recently raised its forecast for the global aluminum surplus, expecting a surplus of 760,000 metric tons this year which is almost double Alcoa’s previous forecast.

Three Best Practices for Buying Commodities

It remains a good time to be a buyer with double-digit declines in fuel surcharges and lower prices across the board for all construction products including rebar and H beams tracked in the index. With the price of oil back below $50 a barrel we are likely to continue to see falling US fuel surcharges and lower cost transportation and shipping charges.

Construction purchasing in the US is now a waiting game as estimators and project executives questions become some version of “how long do I wait before buying” to achieve a truly low price before markets bottom out, rather than how quickly to purchase to avoid non-existent price spikes.

Actual Construction Metals Prices

The weekly US Gulf Coast bar fuel surcharge fell 12.8% over the past month to $0.27 per mile. After falling 11.2%, the weekly US Midwest bar fuel surcharge finished the month at $0.27 per mile. Chinese H-beam steel prices fell 7.0% to $342.58 per metric ton. After rising the previous month, US shredded scrap prices dropped 6.8% to $261.00 per short ton. The weekly US Rocky Mountain bar fuel surcharge fell 5.8% over the past month to $0.29 per mile. A 3.1% decline for Chinese aluminum bar left the price at CNY 12,840 ($2,065) per metric ton. European 1050 aluminum fell 0.4% to $2,853 per metric ton.

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The price of Chinese rebar rose 4.7% to $357.06 per metric ton after falling the previous month.

At a price of $77.20 per dry metric ton, the Chinese low price of 62% Australian iron ore fines did not budge the entire month.

The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

While domestic prices remained stable in June, Chinese steel prices plunged with its stock market. Also, the non-liquid London Metal Exchange steel billet contract fell sharply, weighing on our index.

Free Download: The July Metal Price Forecast

The monthly Raw Steels MMI® registered a value of 56 in July, a decrease of 5.1% from 59 in June.

Raw-Steels_Chart_July-2015_FNL

Chinese Market Reeling

Chinese steel prices are at their lowest level in more than 20 years. Chinese demand seems to be getting worse and industry analysts point out that the fall might not even be close to an end. This threatens the survival of smaller Chinese steelmakers, who are still reluctant to cut production in order to maintain cash flow and bank credit, while other small mills have already shut down.

Construction data shows that demand from the sector has slowed during this first half. Moreover, China’s demand for steel could take a further hit as construction eases over the summer.

Read more

Our construction metals index fell slightly this month despite strong US housing demand and generally good employment numbers.

The monthly Construction MMI® registered a value of 74 in July, a decrease of 1.3% from 75 in June.

Construction_Chart_July_2015_FNL

The drop was mainly driven by hefty price hits to Chinese rebar and H-beam steel – yet the dip was spared from going lower by a more than 10% spike in the US shredded scrap price.

The construction sector neither lost nor gained jobs in June, according to the Bureau of Labor Statistics, and the Commerce Department said permits to build new homes surged 12% in April to an annual rate of 1.275 million, the highest since August 2007. Permits for apartment construction were the breakout leader, while permits for single-family homes, a much broader segment, still rose modestly.

Homebuilders Bullish

Confidence among US homebuilders, as measured by the National Association of Home Builders’ index, rose to its highest level in 9 months in June, so all signs point to a strong building season domestically.

Meanwhile, the developing world isn’t exactly holding its part of the construction spending deal up. A recent World Bank report detailed how China’s state-run banking sector is creating debt while not delivering on the construction stimulus promises Beijing has made. With Brazil still mired in recession and Russian construction limited to heavy pipeline work, the BRICS countries are not developing at the rates they earlier envisioned.

Oil & Gas Demand Up

Demand for oil and gas products such as steel tubes has rebounded domestically as the US passed Russia this month as the world’s top natural gas producer. Baker Hughes reported that the rig count for US oil producers increased for the first time this year, despite massive output by Saudi Arabia and other OPEC countries trying to undercut US producers’ prices. It was the first weekly increase in 30 weeks. Read more

The price forecast for US steel markets, much like me after contracting salmonella poisoning last week, has been quite lethargic lately.

An imminent pullout from the doldrums doesn’t look all too likely due to several major factors, which we’ll dive into shortly, and is supported by MetalMiner’s monthly Raw Steels MMI® clocking in with a value of 59 in June, a 1.7% drop from 60 in May.

steel price index chart june 2015

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The monthly Raw Steels MMI® – a price sub-index tracking a basket of finished steel and raw material prices from all corners of the globe – has been unhealthy for quite a while, and (after undergoing a slight recalibration at the end of 2014) has hit a new all-time low this month. Why?

Today’s Steel Market: Some Factoids to Consider

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