30-05-2013, 11:10 PM
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Iron ore miners face $18bn hit
BY:BARRY FITZGERALD From: The Australian May 31, 2013 12:00AM
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Source: The Australian
FEARS that annual revenues of the Pilbara iron ore producers are in line for a combined hit of more than $18 billion have sent investors scurrying for the exits.
The revenue cut is a result of prices for the key steelmaking raw material slumping to a seven-and-half-month low of $US112.90 a tonne in response to a fresh bout of destocking by steel mills in China, amid slumping steel prices and over-capacity concerns.
Iron ore is now trading more than 22 per cent below its average for the March quarter of $US145 a tonne.
Based on expected production of 550 million tonnes this year, if the lower prices persist, annual industry revenues would be $18bn short of what the March quarter average indicated.
Weakness in iron stocks was a key factor in the broader sharemarket closing 0.88 per cent lower, its lowest level for six weeks.
The big three producers, Rio Tinto, BHP Billiton and Fortescue, were down by 1.35 per cent, 1.18 per cent and 3.35 per cent, respectively. Smaller producers were hit even harder, with Atlas Iron down 6.1 per cent and Mount Gibson down 4 per cent. Market sentiment is also lower after the Organisation for Economic Co-operation and Development lowered its forecast for Australia's economic growth for this year, and the International Monetary Fund downgraded growth forecasts for China, even as the price of construction steel fell sharply in that country.
Traders said smaller Chinese mills had been selling iron ore cargoes back to the market, and traders were unloading shipments at a loss amid expectations the price would fall further.
Commonwealth Bank's commodities analysts said that even with Chinese mills eventually replenishing stockpiles, a seasonal increase in China's own iron ore supply capability and an increase in global seaborne material "suggests that iron ore prices may be weaker in the second half of 2013".
The dramatic slide in iron ore prices from the mid-February peak of $US152 a tonne is expected to put new pressure on Rio chief executive Sam Walsh to consider deferring a decision on a planned $US5bn expansion of mine capacity at its Pilbara operations, scheduled for the fourth quarter of this year.
An increase in the mining rate to 360 million tonnes, up from the currently committed rate of 290 million tonnes, would match the locked-in capacity rate of Rio's port and rail infrastructure in the Pilbara.
But two weeks ago, Mr Walsh said that depending on the market, Rio could choose to either develop new mines to quickly deliver extra production, or conserve cash and fill some capacity with incremental output from existing mines. Since those comments, iron ore has fallen $US16 a tonne or 12 per cent.
Atlas head Ken Brinsden told The Australian yesterday that the volatility in the iron ore price -- it has traded as low as $US80 a tonne last September and as high as $US152 a tonne this February -- was due to the switch from annual benchmark contract pricing to index/spot pricing.
"It affords an opportunity for volatility to unfold in a way that it hasn't historically in iron ore markets, so we are getting used to that and positioning our business so we can deal with the volatility."
Mr Brinsden said that the price was unlikely to remain at lower levels for long because the fundamentals of the supply-demand equation pointed to strong demand.
"Our view is elevated pricing will prevail," he said.
Atlas for one is confident of pushing ahead with its growth projects.
The Perth-based miner updated the market on its operations yesterday, saying its board would decide next month whether to push the button on its Mt Webber operation, which has received the final state and federal government approvals.
"We take the view that our projects in general will be competitive in a global sense," Mr Brinsden said.
"We're not wildly optimistic about the price, but we think these projects will be competitive."
Pilbara neighbour Brockman Mining also sent a signal to the market yesterday that China was still keen on Australian iron ore.
It signed a non-binding agreement with Tianjin Port Group to allow the Chinese state-owned giant to explore the potential to invest in Pilbara infrastructure.
Iron ore miners face $18bn hit
BY:BARRY FITZGERALD From: The Australian May 31, 2013 12:00AM
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Source: The Australian
FEARS that annual revenues of the Pilbara iron ore producers are in line for a combined hit of more than $18 billion have sent investors scurrying for the exits.
The revenue cut is a result of prices for the key steelmaking raw material slumping to a seven-and-half-month low of $US112.90 a tonne in response to a fresh bout of destocking by steel mills in China, amid slumping steel prices and over-capacity concerns.
Iron ore is now trading more than 22 per cent below its average for the March quarter of $US145 a tonne.
Based on expected production of 550 million tonnes this year, if the lower prices persist, annual industry revenues would be $18bn short of what the March quarter average indicated.
Weakness in iron stocks was a key factor in the broader sharemarket closing 0.88 per cent lower, its lowest level for six weeks.
The big three producers, Rio Tinto, BHP Billiton and Fortescue, were down by 1.35 per cent, 1.18 per cent and 3.35 per cent, respectively. Smaller producers were hit even harder, with Atlas Iron down 6.1 per cent and Mount Gibson down 4 per cent. Market sentiment is also lower after the Organisation for Economic Co-operation and Development lowered its forecast for Australia's economic growth for this year, and the International Monetary Fund downgraded growth forecasts for China, even as the price of construction steel fell sharply in that country.
Traders said smaller Chinese mills had been selling iron ore cargoes back to the market, and traders were unloading shipments at a loss amid expectations the price would fall further.
Commonwealth Bank's commodities analysts said that even with Chinese mills eventually replenishing stockpiles, a seasonal increase in China's own iron ore supply capability and an increase in global seaborne material "suggests that iron ore prices may be weaker in the second half of 2013".
The dramatic slide in iron ore prices from the mid-February peak of $US152 a tonne is expected to put new pressure on Rio chief executive Sam Walsh to consider deferring a decision on a planned $US5bn expansion of mine capacity at its Pilbara operations, scheduled for the fourth quarter of this year.
An increase in the mining rate to 360 million tonnes, up from the currently committed rate of 290 million tonnes, would match the locked-in capacity rate of Rio's port and rail infrastructure in the Pilbara.
But two weeks ago, Mr Walsh said that depending on the market, Rio could choose to either develop new mines to quickly deliver extra production, or conserve cash and fill some capacity with incremental output from existing mines. Since those comments, iron ore has fallen $US16 a tonne or 12 per cent.
Atlas head Ken Brinsden told The Australian yesterday that the volatility in the iron ore price -- it has traded as low as $US80 a tonne last September and as high as $US152 a tonne this February -- was due to the switch from annual benchmark contract pricing to index/spot pricing.
"It affords an opportunity for volatility to unfold in a way that it hasn't historically in iron ore markets, so we are getting used to that and positioning our business so we can deal with the volatility."
Mr Brinsden said that the price was unlikely to remain at lower levels for long because the fundamentals of the supply-demand equation pointed to strong demand.
"Our view is elevated pricing will prevail," he said.
Atlas for one is confident of pushing ahead with its growth projects.
The Perth-based miner updated the market on its operations yesterday, saying its board would decide next month whether to push the button on its Mt Webber operation, which has received the final state and federal government approvals.
"We take the view that our projects in general will be competitive in a global sense," Mr Brinsden said.
"We're not wildly optimistic about the price, but we think these projects will be competitive."
Pilbara neighbour Brockman Mining also sent a signal to the market yesterday that China was still keen on Australian iron ore.
It signed a non-binding agreement with Tianjin Port Group to allow the Chinese state-owned giant to explore the potential to invest in Pilbara infrastructure.