Iron ore slump continues apace
DANIEL PALMER SEPTEMBER 24, 2014 4:15AM
The price of iron ore has slid to yet another five-year low overnight -- its third in as many sessions -- despite better-than-expected manufacturing data out of China.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US79.40 a tonne, down 0.5 per cent on its previous closing mark of $US79.80.
Through one of the worst periods for the commodity since the financial crisis, iron ore has climbed just three times in the past 26 trading sessions, with red figures seen in the last six after a surprise 3.9 per cent bounce at the start of last week.
Rising supply is seen driving the falls, with flat demand in China resulting in a persistent oversupply that may not resolve itself for a considerable period.
The recent retreat has cast doubt on the prospect of the regular end of year bounce when Chinese buyers boost stockpiles ahead of winter, with something of a stand-off seen on markets at the moment.
"Steel and commodity suppliers are playing games of brinkmanship with one another, hoping someone else closes first," Standard Bank analyst Melinda Moore said, adding that suppliers may blink first.
"It's now a case of 'seller beware'."
The price below $US80 a tonne has a number of iron ore producers worried as locally-listed Atlas Iron and Mt Gibson Iron will be struggling to turn a profit at current levels, while Gindalbie Metals and Grange Resources have been facing losses since the slump first began.
Meanwhile, the price is edging closer to the low-$US70s breakeven prices of BC Iron and Fortescue Metals Group, but remains well above the breakevens of Rio Tinto and BHP Billiton, which are seen below $US50 a tonne.
Fortescue warns persistent lower iron ore price a 'reality'
SEPTEMBER 24, 2014 9:45AM
Mitchell Neems
Business Spectator Reporter
Melbourne
Fortescue Metals chief executive Nev Power has downplayed suggestions that the current oversupply in the iron ore market was the direct result of a strategy by a trio of mining majors, but has warned that persistent falls in the commodity price are unlikely to be stemmed any time soon.
In an interview with Business Spectator's KGB, Mr Power said the current glut of iron ore has more to do with "all of the capacity that’s been invested in over the last couple of years coming into the market in a very short space of time", rather than a deliberate plan to drive high-cost producers, particularly high-cost Chinese producers, out of business.
"I think this has been a well-forecast and telegraphed plan that low-cost iron ore producers such as ourselves have been expanding capacity to fill the gap in supply that was left when the Chinese demand accelerated," he said.
"What’s happening now is the new low-cost, seaborne supply has come into the market, but we’re seeing a delay in how quickly the high cost production exits."
Mr Power said the "reality of this market" is that the iron ore price will stay low for as long as it takes for that supply-demand balance to be restored.
In the face of a weakening iron ore price -- which recorded another five-year low overnight, trading at $US79.40 a tonne -- mining giants BHP Billiton, Rio Tinto and Vale have ramped up production.
The sustained weakness in the commodity price has been weighing on Fortescue's share price, which yesterday touched its lowest point in well over a year. Fortescue shares slumped as low as $3.47 during yesterday's session, their lowest point since hitting $3.42 on July 15 last year.
While Rio Tinto, BHP and Vale have break-even prices for iron ore of $US42 a tonne, $US51 a tonne and $US60 a tonne respectively, Fortescue has a break-even price of $US72 a tonne.
However, Mr Power is confident the miner can match the titans through a strict focus on productivity and cost-cutting, noting that the miner had brought costs down by 23 per cent in the last twelve months.
"Key to that has been bringing on new low-cost mines that allow us to blend our ores and make the absolute best out of the ores that we have.
"We have some very good, low-impurity ores in the Chichester, which we’re now able to blend with Brockman-style ores from our Solomon Hub to get an advantage in both mines.
"We’ve still got some of that process to go and, in addition to that, we get the normal advantages of being able to run the business productively and efficiently as an overall business."
Mr Power said driving greater efficiency will see Fortescue's costs to continue to come down, noting the miner has set itself C1 cost guidance for this year at $31 a tonne.
Iron ore sinks to new five-year low
DANIEL PALMER SEPTEMBER 26, 2014 7:30AM
The price of iron ore has again reached a new five-year low overnight amid continued worries about growing supply during a period of stable demand.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US78.60 a tonne, down 1 per cent from its previous close of $US79.40 and its lowest mark since September 2009.
The commodity, which has seen just three positive trading days in the past 28, is now down over 42 per cent on the year.
The falls have been in response to a sharp lift in supply from sector heavyweights BHP Billiton, Rio Tinto, Vale and Fortescue Metals Group, with a rare positive for Australian firms being the recent dip in the Australian dollar.
The local unit has yielded over 6 per cent in the past three weeks, offsetting the falls in the price of the commodity over the same period. However, the currency was slow to fall and its 2 per cent decline this year comes well short of the 42 per cent retreat for iron ore.
The latest dip comes amid comments from former Rio boss Tom Albanese that the iron ore market was ripe for a correction.
"This is a realistic market response, and one that was actually quite well-anticipated five years ago," Mr Albanese, who now leads Indian-based miner Vedanta, said.
"If you look at the forward curve two years ago, if you look at the estimates of supply and demand, there are no real surprises in the present market place that had not been anticipated."
Similar sentiments have been echoed by BHP, with the miner's marketing president Mike Henry suggesting the slump had been in line with expectations.
“It is something we have been talking quite openly about for a number of years now,” he said, according to The Australian.
“It’s less about demand side drivers than it is about supply side drivers. Over the past year you have seen a lot of new low-cost supply come to market and as that happens, as production does a better job of keeping up with demand, we are seeing prices revert back to more normal levels.”
Concerns about the iron ore price had an impact on the London-listed stock of both BHP and Rio overnight, with the mining giants giving up 2.9 per cent and 2.4 per cent, respectively.
Sumitomo to Probe $1.8 Billion in Shale And Coal Losses
Sumitomo Corp. (8053) will set up a special investigation into how it lost almost $1.8 billion in Texas shale oil and Australian coal mining.
The probe comes after the company, Japan’s fourth-biggest trading house, cut its annual profit forecast by 96 percent after writing down the value of the two investments. Most of the losses were incurred at the shale oil project it shares with Devon Energy Corp. (DVN) of the U.S.
“I didn’t expect the loss could reach this level at all,” said Jiro Iokibe, a senior analyst at Daiwa Securities in Tokyo, adding that the next threat for shareholders is a possible cut to the company’s dividend.
The Tokyo-based company will form an internal committee to investigate the causes of the impairments at its natural resources operations, Chief Financial Officer Hiroyuki Inohara told reporters in Tokyo today. The company also scuppered plans to raise the ratio of resources assets in its investments.
Net income is forecast to total 10 billion yen ($91 million) in the year ending March 31, down sharply from the company’s May forecast of 250 billion yen, Sumitomo said in a statement. The bulk of the change comes from a 170 billion yen write down on the value of the shale oil development in the Permian Basin in Texas and a 30 billion yen write down of coal assets in Australia.
Read more here
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Wah volcano erupt is already quite jialat liao, now their companies are starting to get billion dollar trading losses, jialat liao lah...
Ex-Rio chief Tom Albanese douses talk of ore price rally
THE AUSTRALIAN SEPTEMBER 30, 2014 12:00AM
Matt Chambers
Resources Reporter
Melbourne
Rio Tinto CEO, Tom Albanese, at the company's office in Collins Street Melbourne.
Former Rio Tinto chief Tom Albanese. ‘You now have supply probably in excess of demand; it doesn’t take much to drive prices lower.’ Source: News Limited
FORMER Rio Tinto chief Tom Albanese is the latest former mining executive to dismiss the prospect of an iron ore rebound, saying prices will remain weak and could be driven lower.
The comments follow downbeat prospects for the nation’s biggest export voiced by former senior BHP Billiton executive Alberto Calderon earlier this month.
And they came as benchmark Chinese iron ore import prices faced another big fall last night.
“Iron ore has been very weak for the past year and it’s likely to stay weak for a while,” Mr Albanese, who ran Rio between 2007 and 2012 and pressed the button on most of the expansion plans that are now causing the price drop, told Bloomberg. Demand was slowing just as supply rose, he said. “You now have supply probably in excess of demand; it doesn’t take much to drive prices lower.”
Miners like Rio and BHP would make good money at current prices but higher cost producers would need to close mines,” said Mr Albanese, who now runs London-listed Vedanta Resources.
“At $US80 (a tonne), the prices are a pain point for many higher-cost producers,” he said.
On Friday night, benchmark iron ore prices were unchanged at a five-year low of $US78.60 and are now down 42 per cent for the year. In China yesterday, January iron ore futures slipped 3 per cent.
When the futures have a significant swing, it is a fairly reliable indicator of the direction the benchmark price, Platts’ Steel Index, will head overnight.
Mr Calderon, who was a contender for the BHP chief executive job that went to Andrew Mackenzie, earlier this month declared iron ore prices would revert to the marginal cost of production and could even overshoot this to sit in the low $US70s for “some years”.
The looming fall in the overnight price wrought more pain on the share prices of Australian iron ore miners.
Fortescue, the world’s biggest pure-play iron ore miner, lost 3.7 per cent to close at a 14-month low of $3.41 and Atlas Iron slipped 5.3 per cent to a new six-year low of 44.5c.
Rio, which is more exposed to iron ore than BHP, fell 1.5 per cent to $59.21 and BHP fell 1.2 per cent to $33.72.
Mr Albanese, who left Rio after big writedowns on the $4 billion acquisition of Mozambique coking coal assets that were recently sold for next to nothing, was appointed chief executive of Vedanta in March.
The Indian-controlled Vedanta makes most of its money from oil and gas and zinc but also has interests in copper, iron ore and aluminium.
Former Rio Tinto chief Tom Albanese. ‘You now have supply probably in excess of demand; it doesn’t take much to drive prices lower.’
Iron ore price hits new five-year low
DANIEL PALMER BUSINESS SPECTATOR SEPTEMBER 30, 2014 8:50AM
THE iron ore price has sunk to a new five-year low overnight as former Rio Tinto boss Tom Albanese said an imminent recovery was a longshot.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US77.70 a tonne, down 1.1 per cent from its previous close of $US78.60 and its lowest level since September 2009.
The month of September has been a harrowing one for the sector, with just three positive trading days and a net loss of 11.5 per cent from levels above $US87 a tonne on September 1.
It leaves the commodity down about 43 per cent on the year.
The latest fall was driven by rising fears surrounding Chinese demand as industrial profits data showed softness over the weekend.
It also came as former Rio chief executive Tom Albanese warned of further pain for suppliers in an interview with Bloomberg TV.
“(Iron ore) is likely to stay weak for a while,” Mr Albanese, who now heads up India’s Vedanta, said.
“In this environment, you now have supply probably in excess of demand. It doesn’t take much to drive prices lower.”
While Mr Albanese was cautious about the near-term, he remained confident about commodity markets recovering in the longer-term.
“What we are seeing right now is a continued slowdown in China from where we were … a couple of years ago,” he told Bloomberg.
“As long as what we’re seeing in China is only a slowdown toward a longer-term GDP of 6 to 7 per cent range, then the commodity and metals markets will be in good shape.”
Iron ore miners thriving in Brazil
THE AUSTRALIAN OCTOBER 01, 2014 12:00AM
Barry FitzGerald
Resources Editor
Melbourne
ASX-listed iron ore groups operating in Brazil and selling to domestic pig iron ore producers are being insulated from the worst impacts of the 42 per cent collapse in seaborne prices for the steelmaking raw material.
So much so that Centaurus Metals is now planning to develop its Candonga project in Brazil, with first production from the low-cost operation possible in April.
Meanwhile, Crusader Resources is tipping an increase in its gross profit from its Posse operation in Brazil from $5.9 million in the June half to $6.5m in the current December half.
Posse supplies regional Brazilian pig iron producers from its mine gate, which is also the plan with the Candonga project. Demand for their product is driven more by internal Brazilian demand rather than the supply/demand picture in China.
A wall of new supply from the Pilbara and patchy economic growth in China has driven seaborne iron ore prices sharply lower this year, with the retreat from $US135 a tonne to $US77.70 this week testing the viability of all but the lowest-cost Australian producers.
Prices for domestic iron ore supply in Brazil have been hit as well, but not to the same extent. Because there is no posted price for internal iron ore sales in Brazil, it is estimated producers are receiving $60-$70 a tonne.
Crusader executive director Paul Stephen said while there had been a 10 per cent price fall in the last month, the Brazilian domestic iron ore price had been amazingly stable in the past year.
“There has been nowhere near the same magnitude of price swings that there has been in the international trade,’’ he said at the Resources Rising Stars conference on the Gold Coast.
Crusader’s Posse project also enjoys low costs of production of about $10 a tonne. Centaurus’s Candonga project is also forecast to be a low-cost producer, with estimated mine gate operating costs of $14.90 a tonne.
Centaurus managing director Darren Gordon said the low costs reflected low strip ratios, simple processing and lower labour costs than in the Pilbara.
The reporter travelled to the Gold Coast as a guest of the conference organisers.
BHP presses on with WA iron ore plan despite price slide
THE AUSTRALIAN OCTOBER 02, 2014 12:00AM
Matt Chambers
Resources Reporter
Melbourne
BHPBHP and Rio Tinto continue to flag iron ore expansions, despite iron ore prices slumping to a five-year low. Source: News Corp Australia < PrevNext >
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BHP Billiton’s still highly profitable West Australian iron ore unit will be in sharp focus in coming weeks as the miner ignores sliding prices to promote an expansion that analysts have said could add $US10 billion ($11.5bn) to the company’s value.
But iron ore president Jimmy Wilson, who will host investor and media tours to the Pilbara region over the next couple of weeks, could have his work cut out convincing dividend-hungry investors of the merits of the expansion. The slide in the iron ore price has shown no sign of abating and sentiment has turned markedly since August when the expansion was revealed to be at half previously guided costs.
Weighed by falling iron ore and oil prices, BHP shares are down 14 per cent since August 19, when the company released decent full-year results but held back on a share buyback many were expecting and announced a $US17bn spin-off of non-core assets.
Largely missed among the other big news was a declaration that the annual capacity of the Pilbara region iron ore mines, ports and railways could be expanded by 65 million tonnes, to as much as 290 million tonnes a year, at a cost of $US50 a tonne of annual capacity. That represents an expansion of as much as $US3.25bn, for 20 million tonnes more capacity than previously targeted at half the previous cost a tonne.
There is also a good chance the coming tour will reveal a hefty portion of that capacity is already in place and the remaining cost will be lower.
When Mr Wilson fronts investors and media on Monday, analysts are hoping for details on the timing of the expansion, costs and how BHP plans to extract an unaccounted 14 million tonnes of extra production beyond a flagged expansion of the new Jimblebar mine.
“We think the coming three to six months could see more positive news flow at BHP, starting with the site visit,” RBC analyst Timothy Huff said. “It could lead to modest upgrades for WA iron ore driven by both volume and cost improvements.”
UBS has said the August revisions to the cost and size of the expansion could add $US10bn to BHP’s net present value.
BHP and Rio Tinto continue to flag iron ore expansions, despite iron ore prices slumping to a five-year low and Chinese steel demand slowing, because they believe they can still make good returns and their extra production will force higher-cost producers out of the market.
While BHP and Rio can still make close to 50 per cent margins at prices of $US77 a tonne — down from $US135 at the start of the year — the rapid price decline is eating into cashflows and will impact on the miners’ ability to return cash to shareholders.
BHP’s biggest shareholder, the London-based BlackRock resources fund, this week indicated it was not completely happy with the BHP and Rio philosophy of pumping as much iron ore as possible onto an oversupplied market.
“The majors have been showing greater capital discipline but they need to keep on this path,” BlackRock head of resource equities Evy Hambro told London’s Financial Times yesterday.
“The iron ore market is already in surplus, so miners need to decide if it is wise to spend more money adding additional tonnes or not.”
It should be noted the vocal BlackRock fund just invests in mining stocks, rather than being able to increase exposure to more dividend-heavy sectors.
It also has an interest in other companies in its portfolio not being negatively affected.
Local fund managers said the case for putting more low-cost supply on the market remained strong, despite most analysts having cut their iron ore price forecasts since BHP’s results.
“The BHPs and Rios of the world, who are the low-cost producers, can make good money through incremental expansions at very low capital costs,” Arnhem Investment Management managing partner Neil Boyd-Clark said. “I’m not expecting any major changes (to August indications the expansion was attractive) and I’m sure they’ve run a range of long-term price scenarios.”
Pengana Capital fund manager Tim Schroeders said the flagged BHP expansion still looked like a good decision after recent iron ore price falls.
“It’s more a case of leveraging into existing infrastructure and understanding where BHP sits on the cost curve, and the cost and quality of product makes it an easy decision,” Mr Schroeders said.
“I don’t think many people will be sitting there telling them to back off and let the market settle down,” he said.
Commodity sector now hit by both rising US dollar and rising supplies. The oil price dropping fast is a concern though as previous market crashes quite a few preceded by oil price going down down down.
Iron ore edges higher for second day
DANIEL PALMER BUSINESS SPECTATOR OCTOBER 03, 2014 8:39AM
THE price of iron ore may have found a base after enduring one of its worst ever months in September, with losses of 12 per cent and just three positive trading days.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US78.80 a tonne, up 0.6 per cent from its previous close of $US78.30. The move represented the second straight day of gains after the commodity reached a five-year low of $US77.50 a tonne.
However, iron ore prices remain more than 40 per cent below where they started the year after an unprecedented three straight quarters of double-digit percentage declines.
The falls have largely been a result of rising supply, however mixed data out of China has also cast doubt on demand from the world’s biggest customer.
There have been hopes in the mining sector that the traditional last quarter stockpiling in China could reignite the market, with optimism iron ore could at least move back above $US90 a tonne.
The latest pricing action gives hope for this circumstance to play out, but miners will be cautious after a two-day rally above $US85 a tonne last month quickly fell flat.