Tag: iron ore prices

Chinese Steel and Iron Ore Prices Take a Hammering

A recent Financial Times article lays the blame for falling iron ore prices in China firmly at the door of Australia’s Department of Industry Innovation and Science, whose latest quarterly report predicted average prices in China would fall to $65 per metric ton this year before ultimately declining further to $51 per mt.
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The FT quoted the department’s report saying prices would be weighed down by the combined impact of ongoing growth in low-cost supply and soft demand.
[caption id="attachment_84147" align="alignnone" width="300"] Source: Financial Times[/caption]
While we don’t doubt that investors will have taken notice of the department’s report, the fact is analysts have been calling for a fall in the iron ore price for months now. Indeed, the rising tide of supply has been expected to weigh on prices for much of the last six months, such that continued price resilience and robust demand have caught some by surprise.
But falling iron ore prices recently, down a massive 7% on the Dalian Commodities Exchange according to Australia’s Business Insider, are not alone. Prices for steel rebar on the Shanghai Futures Exchange are down nearly 5%, coking coal is down over 4% and coke prices are down nearly 5%. MetalMiner’s daily reports on domestic steel prices in China have also shown the daily price falls underlining that negative sentiment are widespread and not confined to iron ore alone. As Business Insider points out, the speed and size of the price fall suggests it is being driven by speculators unwinding bullish bets, in part influenced by ever rising levels of Chinese port inventories of low-grade iron ore.
Australia’s Department of Industry is not alone among official bodies calling for a likely price fall. Li Xinchuang, the vice-president of the China Iron and Steel Association, told the Global Iron and Steel Forecast Conference in Perth recently that he expected to see iron ore prices fall to as low as $55/mt later this year, citing a combination of rising supply in Australia and Brazil combined with the Chinese governments ordered closure of some of China’s steelmaking capacity would result in a significant excess of supply this year.
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Rising protectionist measures around the world will further hinder producer’s ability to maintain production levels by dumping excess capacity abroad. Reuters reported recently that the European Commission had set anti-dumping duties on imports of hot-rolled flat steel products from China at a higher rate than those already in place. The commission set final duties of between 18.1 and 35.9% for five years compared with provisional rates imposed last October of 13.2 to 22.6% following a complaint launched by the European steel association Eurofer on behalf of ArcelorMittal, Tata Steel and ThyssenKrupp. Interestingly, the commission said that the measures would not be applied on the same products from Brazil, Iran, Russia, Serbia or Ukraine, although they were being kept under investigation

Iron Ore Prices Defy Gravity, But For How Long?

Iron ore prices have done an amazing job of defying gravity, the price has risen 41.7% this year after three straight years of losses according to Australia’s Business Insider.

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Prices for 62% fines hit $61.75 per dry ton this week and have averaged $53.64 per dry metric ton this year.

[caption id="attachment_80391" align="alignnone" width="300"]Source: Business Insider Source: Business Insider[/caption]

The raw material has variously been called the darling of the commodities market and by Citicorp as 2016’s hot commodity but many are now beginning to ask if enough is enough and just how much support there is for current price levels let alone further rises.

Price strength has been a product of two interdependent drivers. On the one hand, iron ore prices largely followed a rally of Chinese steel prices. Prices rose as a result of strong property (new) starts and stimulus-inspired infrastructure investment and robust growth in sectors such as auto production caught the market when inventories were low. As finished steel prices increased, mills went into overdrive churning out steel like it was the turn of the last decade.

Chinese Stimulus

On the back of a credit surge — itself a product of the stimulus measures — speculative trading in iron ore, steel and coal reached fever pitch driving up futures prices. In the face of rising steel prices, steel mills and regional governments have staunchly resisted attempts to curtail production saying if there was excess capacity, prices would be falling not rising.

Unfortunately, good times don’t last forever and, for iron ore producers, their good times may be coming to an end. Low-cost iron ore supply remains plentiful with Vale SA‘s new S11D project due to come onstream by the end of this year and Roy Hill’s ramp up hitting the market at around the same time.

Construction Slowing

Simultaneously, China’s stimulus is fading. After the first sugar rush, construction is said to be slowing and with key international gatherings imminent — like the G20 summit — when steel mills are asked to close to reduce pollution in China it is likely thought that steel demand will ease in Q4 as the current building season comes to an end.

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Iron ore inventories at seaports are up with plenty of raw material around many are expecting a softening in both iron ore and steel prices in Q4. To the extent this translates into increased exports of unwanted metal this could then become more of a problem for the rest of the world than for China. Steel exports have been a major source of international tension for the last two years. if exports rise on the back of slowing domestic demand this particular flashpoint is going to get worse rather than better in 2017.

Chinese Iron Ore Imports Rise as Surcharges Fall

While demand for iron ore is up in China, the Philippines has shut down its only producer.

Chinese Iron Ore Imports Increase

On July 19th, the iron ore benchmark for immediate delivery to China’s Tianjin port fell by 2% to $55.10 per metric ton, the lowest since July 1st. Chinese iron ore imports rose 8.3% in July from the previous month to hit its second-highest on record, customs data showed on Monday.

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The move followed a significant drop in the most traded benchmark for construction material rebar on the Shanghai Futures Exchange. Demand for the key steel-making ingredient has increased as Chinese steel mills fired up furnaces on the back of higher prices.

Philippines Shuts Down Lone Iron Ore Miner

The Philippines has suspended the operations of the country’s only iron ore miner due to environmental infractions, officials said on Monday, bringing to eight the number of mineral producers halted in a government crackdown.

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The Southeast Asian nation, the world’s top nickel ore supplier, began an audit of all its metallic mines on July 8, shaking global nickel markets as seven nickel miners were suspended for causing environmental harm.

Rare Earths Suffer From Substitution Due to Boom/Bust Price Cycles

Rare Earths Suffer From Substitution Due to Boom/Bust Price Cycles

Rare earths are hitting new price lows as major manufacturers continue to invest in new technologies to substitute them out due to price volatility. Iron ore is still oversupplied, but stockpiles are falling faster than expected.

Substitution is Hindering Rare Earths Demand

Reuters’ Andy Home recently wrote about how large manufacturers are finding substitutions for heavy rare earths in a gambit to avoid the boom and bust price cycles of the magnet and battery metals that previously disrupted their supply chains.

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Japanese automotive giant Honda and its technology partner Daido Steel recently announced a materials breakthrough in the electric motors used in hybrid vehicles. Starting with the next generation of “FREED” minivan due to go on sale later this year, Honda will be using a motor that doesn’t need heavy rare earth metals.

Specifically, it will be the world’s first hybrid engine, a gasoline and electric motor, to dispense with terbium and dysprosium.

“Major deposits of heavy rare earth elements are unevenly (distributed) around the world (…) thus, the use of heavy rare earth carries risks from the perspectives of stable procurement and material costs,” Honda said in a statement.

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A fairly innocuous sounding statement but one that cuts to the heart of the roller coaster history of the rare earths market.

Iron Ore Stockpiles Falling Fast

Iron ore’s wild price gyrations this year may be masking a small, but significant, shift in the underlying fundamentals for the steel-making ingredient. While seaborne iron ore remains a well-supplied market, it appears the level of over-supply has been diminishing faster than many expected, leading to an improvement in the supply-demand balance, Reuters’ Clyde Russell writes.

Essar Steel Minnesota Declares Bankruptcy; ThyssenKrupp Still in Talks With Tata

Essar Steel Minnesota Declares Bankruptcy; ThyssenKrupp Still in Talks With Tata

Essar Steel Minnesota filed for bankruptcy protection after losing its mineral leases in the Iron Range and ThyssenKrupp AG insists it’s still talking to Tata Steel about a possible purchase of European steel mills.

Essar Steel Minnesota Files for Chapter 11

Essar Steel Minnesota LLC — the U.S. affiliate of India’s shipping, natural resources and power conglomerate Essar Global Groupfiled for chapter 11 bankruptcy protection on Friday.

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The company’s assets and liabilities are estimated to be worth between $1 billion and $10 billion, according to a court filing in the District of Delaware. The filing was prompted by Minnesota Governor Mark Dayton (D.) giving the order to terminate Essar Steel Minnesota’s lucrative mineral leases on Minnesota’s Iron Range. The company had been told that if it did not repay $66 million in infrastructure costs to the state and also pay its overdue contractor bills that the leases would be terminated.

ThyssenKrupp Says it’s Still in Talks With Tata Steel

Thyssenkrupp AG, Germany’s biggest steelmaker, confirmed on Sunday that it is in talks with India’s Tata Steel about a consolidation of beleaguered European steel mills that are hit by overcapacity, weak demand and cheap imports.

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Tata Steel said on Friday it had suspended the process of selling its troubled U.K. arm while it held talks with potential partners, including Thyssenkrupp, about alternative and more sustainable solutions for its entire European business. In addition to its U.K. operations, Tata Steel Europe also owns the former Hoogovens steel plant in the Netherlands which has been mentioned as part of a sale.

India’s Iron Ore Oversupply Problem Won’t End Soon

India’s Iron Ore Oversupply Problem Won’t End Soon

Huge inventory levels and increased production are not helping India’s iron ore mining sector.

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According to a recent report by credit rating agency ICRA, India’s iron ore prices are not likely to recover in the near future. On the other hand, steel companies would benefit from this development in the short term. They were likely to enjoy “better profitability” due to improved steel prices in the current year, supported by imposition of minimum import price (MIP) by the government.

Production Up, Prices Down

India’s iron ore production in 2015-16 was at 155 million metric tons, registering an annual growth rate of 23%, ICRA said in a statement. Much of the incremental production in iron ore was because of stepped up mining in the Indian state of Odisha. In the current fiscal, ICRA said, India’s iron ore output could be somewhere in the range of 170-175 mmt.

The Federation of Indian Mineral Industries (FIMI), on the other hand, was of the view though that the Indian iron ore export mining industry needed tax relief to compete internationally after an absence of approximately four years when mining was largely banned in many Indian states.

Speaking at an iron ore conference in Singapore recently, R.K. Sharma, Secretary-general of FIMI said it would “challenging” to restart some of the mines after they have been shuttered for four years.

According to ICRA Corporate Sector Ratings Senior VP Jayanta Roy, because of the substantial iron ore inventory levels at existing mines and the fact that India’s iron ore production was slated to increase further, domestic iron ore prices are unlikely to recover meaningfully in the near term, which benefits local steel mills.

Post minimum-import-price, Indian hot-rolled coil (HRC) prices have seen a sharp increase of about 25% from the lows reached in February 2016, according to ICRA’s quarterly research report on the steel industry. Industry players saw additional gains due to an increase in sales volumes, as imports were likely to reduce in the current year.

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The MIP is scheduled to expire in the second quarter of the India’s fiscal year (April 1 to March 31), but according to analysts, the present level of international prices and the extension of a safeguard duty by the Indian Government to March 2018, could continue to boost prices and prospects for Indian steel producers.

Raw Steels MMI Falls, US Steel Market Still Sees Higher Prices

Steel markets painted an interesting picture in May. Chinese steel prices fell in May while US steel prices continued to skyrocket. Let’s explore this unusual divergent between Chinese and U.S. prices.

Raw-Steels_Chart_Jun-2016_FNL

Chinese Steel Prices Fall

This year we saw an improvement in steel market demand in China thanks to stimulus measures. Also, China, the world’s biggest steel producer, vowed to cut production capacity by 10-15% over the next five years.

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This combination boosted sentiment in the steel market and prices in China rose. However, as prices rose, the market questioned whether the price rally would hinder the country’s efforts to tackle that overcapacity problem.

And the market has good reason to have questions. Massive overcapacity in China’s steel industry has yet to shutter. While China’s crude steel output dipped 2.3% in 2015, production rose 0.5% in April compared to the same month last year.

Meanwhile, in May, government officials said that Beijing would continue to urge local governments to push forward steel industry capacity cuts and take reasonable measures to accelerate closures. China says that the capacity that has recovered is regular capacity, and not the one marked for closure. Certainly, If China falters on its commitment to reduce excess steel capacity, we could see that impact global steel markets, including U.S. But so far, unlike Chinese prices, U.S. prices didn’t tumble in May.

US Steel Prices Continue to Rise

The momentum in domestic steel prices continued in May. HRC prices rose by more than 20% just in the past four weeks. U.S. steel buyers will feel the price increase in their budgets this year unless, like our subscribers, they started hedging at lower prices earlier this year.

The price divergence between the U.S. and China comes down to imports. Steel imports into the U.S. were down in April. For the first four months of 2016 total and finished steel imports were down 34% and 33% vs. the same period in 2015. In addition, US steel producers seem reluctant to bring their idled capacity back online despite dried up import supply lines, particularly for flat-rolled steel products.

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This combination has left buyers in a short squeeze. Lead times for flat-rolled steel products have risen, allowing U.S. steel companies to raise their base selling prices.

What This Means For Metal Buyers

U.S. steel prices remain strong, but after the huge price gains seen this year, we wonder if, despite strong trade protections, domestic prices will suffer in the second half due to the ongoing global overcapacity issues and the recent correction in iron ore and Chinese steel prices.

Steel-Insight: Iron Ore Not Worth Getting Excited About

Iron ore has certainly been volatile so far this year. It jumped from the low $40s/ metric ton or 62% Fe fines on a delivered China basis to over $70/mt in April. It now stands at just below $50/mt.

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In percentage terms, those are big moves in a short period of time, but frankly at Steel-Insight, we find this irrelevant. In context, the recent moves don’t hold a candle to the fundamental shift in the product’s shift from $200/mt in 2011 to the current level. Now that was a generational change.

Iron Ore Monthly Average Prices ($/Metric Ton cfr China 62% Fe fines)

steel_insight_ironore_053016_350

Source: Platts

In terms of the monthly average price, which is what many steelmakers’ costs outside of China are linked to, the moves have been relatively small from around the low $40s to the high $50s. For steelmakers, even that $20/mt change in iron ore costs actually only add $30/mt to their total cost structure (around 1.5 mt of iron ore is required to make a tonne of steel).

Meanwhile, North American steelmakers have seen steel prices rise from $360/short ton for HR coil at the beginning of the year to current levels of $620/short ton. The fact that ore costs may have gone up $30/mt in that period is pocket change.

Not a Long-Term Concern

Moreover, the rapid change in prices has clearly been a short-term event. It was driven by a modest improvement in steel market demand in China. However, this was compounded by the massive liquidity boost to the Chinese market that was seen in Q1 this year that the Chinese government injected in order to stave off an excessive slowdown. That allowed steelmakers, which had been forced to idle in late 2015 due to lack of credit, to secure iron ore and return to steelmaking. Their buying drove modest gains in iron ore pricing.

However, the market was turbo-charged by retail Chinese investors. Responding to the rising price and also public statements from Chinese political leadership, vast amounts of speculative finance surged into iron ore futures in China. In one day in April, the turnover in volume on the Dalian iron ore contract exceeded the combined turnover of all equities trading in China with pricing up 19%. Upon tightening access to trading, this liquidity ebbed as did the price. The most volatile pricing moves were not, therefore, an indication of fundamental demand.

Supply/Demand Picture

Fundamentally, iron ore is going to be boring for the next five-plus years. There is simply too much supply available to a steel industry where global demand is not growing. We expect iron ore prices to hit the $30s/mt for a period in the second half of this year and stay there for an extended period, with pricing moving in the $30-60/mt range for the next five years, i.e. exactly the trading range that they have been in the for the last year.

That will mean more pain for global iron ore miners. For steelmakers and steel buyers, however? A long period of low prices will be welcome….and boring.

Steel-Insight is a steel industry price-forecasting publishing company, based in Toronto. James May, the firm’s managing director, has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.

 

Iron Ore Prices Hit a 16-Month High, Still Rising

Iron Ore Prices Hit a 16-Month High, Still Rising

If you had been asleep for the last month, woke up this morning and picked up a paper you could be forgiven for thinking you had been transported back to 2009.

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Chinese construction is up 20% last month year-on-year, Chinese loans were up 41% last month, the government is raising exchange-margin requirements from 5 to 8% to dampen rampant speculative behavior, should we go on?

Is it 2009 Again?

Turn to commodity prices, copper is up 20% this quarter, zinc is up 22%, iron ore has nearly doubled, hitting $70 per metric ton and a 16-month high according to Bloomberg. Steel mills in China, encouraged by rising prices and strong construction demand, churned out over 70 million metric tons last month, nearly equivalent to the entire U.S. annual output. Sound like the start of the supercycle to you?

Iron ore producers are trying to take credit for cutting back on expansion of iron ore mines and are indicating they would limit production to support prices, but, in reality, they are tinkering at the margins.

Price gains, flatfooting nearly all of us, have been driven by a sugar rush of stimulus investment by Beijing, the question (the same one we faced back in 2009 it must be said): is this temporary to provide some short-term relief or is it medium- to long-term stimulus to give the steel industry time to restructure?

In 2009 it went on for more than two years, at present we have no way of knowing how long Beijing will keep this up but if you ask Goldman Sachs its analysts say the iron ore price is coming back down.

The investment bank is reported in Bloomberg as saying rising iron ore supply — not so much from Rio Tinto and BHP Billiton but from others encouraged by higher prices lifting the industry above the cost curve — as inflating the oversupply position. Goldman quotes Citi in saying iron ore cargoes from Australia may rise 10% to 846 mmt this year as Roy Hill ramps up, while Brazilian exports will gain about 7% to 393 mmt.

Chinese Stimulus

Increased supply will weigh on prices whether China’s stimulus perseveres as a more permanent feature or fades in the coming months. It must be said, until just a matter of weeks ago, Beijing was saying that China’s past investment-fueled growth had led to bad investments, lower productivity and a heap of debt.

[caption id="attachment_78336" align="alignnone" width="300"]Source Bloomberg Source: Bloomberg.[/caption]

For Beijing to embark on a long-term policy of yet more of the same would seem like madness, especially as it has the means at its disposal to retrain and relocate displaced workers from the steel and coal industries most directly impacted by a more rapid rationalization of those industries.

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Unless the party is worried about a wider slowdown in the economy, unless they have data that suggests GDP will fall faster and lower than projections during this five-year plan, such a loss of face may justify the more extreme step of piling debt on debt to stimulate the economy. It is too early to call. If you believe Goldman we will be back to $35 per mt iron ore by the second half of this year, but with steel and scrap prices rising globally, that would be a brave call.

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