China a drag on steel demand: trade group
AFP OCTOBER 07, 2014 2:30AM
Global demand for steel will grow by just 2.0 per cent this year owing to a rebalancing of the Chinese economy and a slowdown in other emerging countries, the sector's trade body says.
The growth forecast to 1,562 million tonnes in steel use by the World Steel Association is down from the 3.1 per cent rate it forecast in April and the 3.8 per cent recorded in 2013.
"The positive momentum in global steel demand seen in the second half of 2013 abated in 2014 with weaker than expected performance in the emerging and developing economies," the head of the association's economics committee, Hans Juergen Kerhoff, said in a statement.
"The slowdown in China's steel demand reflecting the structural transformation of the economy has contributed significantly to our lower global growth projection," he added.
The WSA now expects just 1.0 per cent growth in China's steel use this year to 748.3 million tonnes, and 0.8 per cent growth in 2015.
"In China rebalancing (of the economy) will continue to act as a drag on steel demand," said Kerhoff.
Falling commodity prices, structural constraints and geopolitical tensions also let to a "major slowdown" in South America and the CIS countries.
The WSA now expects recoveries in the EU, United States and Japan to be stronger, but not enough to compensate for the slowdown in emerging economies.
A drop of 0.4 per cent in US steel use last year is being followed by an upwardly revised 6.7 per cent jump this year thanks to strong growth in the automotive and energy sectors, said the WSA.
Growth is expected to continue at a rate of 1.9 per cent last year.
After growing by 2.1 per cent last year, demand growth is expected to accelerate to 2.3 per cent this year in Japan to 66.8 million tonnes.
In the EU, demand growth is expected to jump from 0.8 per cent last year to 4 per cent this year to 145.9 million tonnes, then slow to 2.9 per cent in 2015.
The WSA now expects steel use to rise 4 per cent in developed countries this year, then slow to 1.7 per cent growth in 2015.
Emerging and developing economies, excluding China, are expected to see a 1.7 per cent increase in demand this year which will then pick up to 4.7 per cent in 2015.
Iron ore bounces back to $US80 a tonne
DANIEL PALMER BUSINESS SPECTATOR OCTOBER 08, 2014 8:19AM
HOPES are continuing to rise that the iron ore price has found a base after the commodity extended its recent rally overnight.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US80 a tonne, up 1.3 per cent from its previous close of $US78.90.
The commodity has not seen red figures for five straight trading days since hitting a new five-year low of $US77.50 a tonne last Tuesday.
There has been optimism in the mining sector that stockpiling in China ahead of winter could reignite the market, but persistent falls in September on oversupply worries had shaken that confidence.
The commodity has seen a record three straight quarters of double-digit percentage declines, but the strong start to October offers the potential for the streak to be broken in the December quarter.
London Mining warns of collapse as ore price plunge takes toll
THE AUSTRALIAN OCTOBER 10, 2014 12:00AM
Paul Garvey
Resources Reporter
Perth
WEST Africa’s fledgling iron ore industry has been rocked by the collapse of one of its key players, underscoring the challenge facing Rio Tinto’s huge Simandou development and the ambitions of Perth-based Sundance Resources.
The UK-listed London Mining admitted that its shares had “little or no value”, painting a grim picture for the future of the company and its Marampa iron ore mine in Sierra Leone.
The 40 per cent plunge in iron ore prices has wiped out the profitability of London Mining and the Marampa mine, while the ongoing Ebola crisis in Sierra Leone has also impacted on the operation and London’s efforts to bring in an investor to rescue the company.
The company was continuing to work towards securing a new backer to bail it out, but admitted any rescue package was unlikely to leave much value for existing investors.
Shares in London Mining have now fallen 99.3 per cent this year, all but wiping out a market capitalisation that had peaked at more than £100 million ($182m).
Other West African iron ore miners are facing similar issues.
The biggest, African Minerals — which produces 20 million tonnes a year of iron ore from its Tonkolili mine in Sierra Leone — has seen its share price fall 93.1 per cent this year, wiping more than $1.2 billion off its market capitalisation.
Shares in Bellzone Mining had fallen 91.7 per cent since December before it suspended its shares last month after failing to get the funding it needed to continue with its iron ore operations in Guinea.
The problems among the West Africa miners reflect how deeply the iron ore price slump is hurting new mining regions that opened up on the back of previously booming ore prices.
It also reinforces the task ahead of Rio Tinto as it weighs up the proposed $20bn development of Simandou, a huge and high grade but remote iron ore deposit in Guinea.
Simandou has been criticised by Rio Tinto’s rebuffed suitor Glencore, with the latter’s chief executive Ivan Glasenberg publicly expressing his doubt about the likelihood of the development going ahead in the current environment.
Sundance has long harboured ambitions to develop its Mbalam project into a 35 million tonne per annum operation. It recently secured a $40 million funding commitment from Ukrainian billionaire Gennadiy Bogolubov but needs further funding to deliver the project.
Martin Ferguson warns majors risk squeezing out mid-tiers
• THE AUSTRALIAN
• OCTOBER 11, 2014 12:00AM
Matt Chambers
Resources Reporter
Melbourne
Former resources minister Martin Ferguson says expansion by BHP and Rio could cause some WA miners to close. Picture: Stuart McEvoy Source: News Corp Australia
RELENTLESS iron ore expansion by BHP Billiton and Rio Tinto could lead to the closure of other West Australian iron ore mines, according to former federal resources minister Martin Ferguson, who now heads billionaire Kerry Stokes’ resources ¬business.
But Mr Ferguson, who is group executive director at Mr Stokes’ Seven Group Holdings, which owns the WesTrac mining supply business, says there is no role for governments to try to rein in ¬production to hold up prices.
Speaking to The Weekend ¬Australian in Melbourne, Mr Ferguson said it was in BHP and Rio’s interests to expand their low-cost mines to reap the benefits of more than $US40 billion ($58bn) of mine, port and rail expansions in the past decade.
“Clearly it’s going to put pressure on some of our mid-tier and some of our overseas competitors; you can’t rule out closure of some iron ore mines in WA, the same way in which we saw coalmines closed or mothballed on the east coast in the past two years,” he said. “You’d expect BHP and Rio and (Hancock Prospecting’s under-construction project) Roy Hill to be able to work their way through it, but I am worried about some of the mid-tiers.”
Iron ore prices have slumped to below $US80 a tonne, from $US135 at the start of the year as BHP, Rio and Fortescue have continued to put iron ore on to an already oversupplied market.
BHP and Rio’s low all-in costs to China of between $US45 and $US50 a tonne mean they will continue to make good margins at current prices, but companies like Atlas Iron and Arrium are starting to struggle at these prices.
If prices fall much further, they may even start to affect Fortescue’s Metal Group’s ability to pay back debt.
The slumping prices, which have eaten into West Australian budget forecasts that were based on $US100-plus iron ore prices, led WA Premier Colin Barnett to this week call for BHP and Rio to pull back expansions or face the threat of higher royalties to make up for lost state revenue.
Mr Ferguson said governments should not intervene. “There’s no role for government to try to be trying to set price or determine the maximum capacity that an ¬individual company can produce.
“Our position has got to be: the market will sort it out, the same way it was when China lectured us about higher iron ore prices and said we should be hands-on to make sure they buy our iron ore at the lowest possible cost — we ¬always had a view it’s got to be hands off.”
In a further sign price pressure may remain in the short term, both BHP and Rio this week said state-owned Chinese iron ore production was not being reduced despite the fall in prices.
China’s 140 million tonnes of state-owned production continued to run at full capacity, according to BHP, while Rio iron ore chief Andrew Harding told -analysts that this supply was not expected to leave the market at any price.
BHP, Rio fend off assailants and critics
PUBLISHED: 8 HOURS 18 MINUTES AGO | UPDATE: 5 HOURS 58 MINUTES AGO
BHP, Rio fend off assailants and critics
Spot iron ore has crashed 40 per cent since the start of the year to hover at five-year lows of about $US80 a tonne. Photo: Michele Mossop
AMANDA SAUNDERS
After years of being heralded as the iron men of the Australian economy, and overseeing rapid expansions of their minerals businesses, Rio Tinto and BHP Billiton suddenly find themselves in the firing line for creating a “tsunami of supply” that is driving prices down.
Executives from both companies will talk until they are blue in the face about being price takers, not price makers. They say they can continue to push down the cost curve, ensuring plump margins in the face of the dramatic price falls, even though they’re the ones pushing the price down by pouring billions of dollars into expansion.
They say they pay little heed to the short-term iron ore price, and that iron ore is a long-term game. And the name of that game is market share.
Now, ironically, their supply push on the price of iron ore – Australia’s biggest export earner – is making Rio the target of unwanted attention, and to a lesser extent, BHP. It’s forced them onto the offensive.
In a dramatic week for the iron ore sector, it was revealed the most opportunistic man in the commodities business – Glencore chief Ivan Glasenberg – put a merger offer to Rio back in July. He wanted to create the world’s largest mining company, with a market capitalisation of $182 billion. Rio swiftly rejected it.
Word has it Glasenberg has taken umbrage at Glencore’s lack of control over the iron ore market.
He’ll be hoping his advance will pile pressure on Rio’s management, led by chief executive Sam Walsh, and cast doubt over their race to increase production by a further 25 per cent to about 360 million tonnes a year.
The other two major iron ore exporters – Brazil’s Vale and Fortescue Metals Group – are also on expansion rampages. Vale, the world’s biggest producer of iron ore, is gunning to increase annual production to about 450 million tonnes by 2018, from 306 million tonnes last year.
Spot iron ore has crashed 40 per cent since the start of the year to hover at five-year lows of about $US80 a tonne, and the effects are being felt across the Australian economy.
On Thursday, two days after news of the “GlenTinto” tilt broke, WA Premier Colin Barnett lashed out at BHP and Rio, warning moves to boost iron ore production were “flawed” and hurting the state.
‘IF IT’S NOT US, IT’LL BE OTHERS’
The Premier attacked BHP and Rio for their expansion plans, and said he could increase royalties if the production hikes continued. WA will lose $49 million in royalties for every $US1 decrease in the average price below its target of $US122.70 this financial year.
It’s not only in the home of the industry – WA – where the effects of lower prices are being felt.
Iron ore props up Australia’s national accounts, and falling prices this year have so far robbed Treasurer Joe Hockey of about $US15 billion ($17 billion) in tax revenues.
But the federal government will still reap at least $US75 billion from iron ore this year.
But Rio’s iron ore boss Andrew Harding lashed out at critics of the expansion strategies being run by the iron ore majors, saying “it is fundamentally wrong the position they are taking”.
In a flash press conference called for Thursday, Harding said if Rio Tinto were to halt its expansion push, a flood of new projects being developed by companies outside the iron ore majors, would quickly fill the production gap and it would be difficult to dislodge them.
“If it is not us putting in the highest-margin iron ore on the planet’s surface, then it is available to others,” he says. “I want to stress that point, curtailing production would simply create a void that would be filled by other producers and new starters.
“If we were to decide not to fill that void, for a very short period of time the price would go up, but then others will move into the marketplace . . . and they will be very sticky in the marketplace for a very long time.”
“The reality is that the long-term price remains the same, because somebody fills the void.”
Under UK takeovers law, the London-listed Glencore must wait six months before making another tilt at Rio. If the iron ore price continues its free fall, Glasenberg may well have another shot.
While the majors are shielded from a price squeeze, with recent UBS estimates putting Rio’s current break-even price at $US45 a tonne and BHP’s at $US49, a suite of junior Australian producers and fellow high-cost Chinese producers, are unprofitable at current prices.
And China’s insatiable appetite for iron ore has been revealed to have limits, with steel demand showing signs of slowing. Poor growth forecasts coming out of Europe and the IMF are simply adding to the pessimism.
But the majors are betting on long-term demand in China remaining strong. Rio Tinto says China will hit 1 billion tonnes of crude steel production by 2030.
Rio’s Andrew Harding says the miner is bullish on China long-term. “We look at the demand of the iron ore business into the future, the reality is its good growth in China . . . and the ASEAN group, and that creates a void in the marketplace that needs to be filled by suppliers.
“This [new production] capacity will enable us to create long-term value and returns for our shareholders, rather than handing it to other producers.”
The Australian Financial Review
Ferro giants- the world’s biggest iron ore producers
China
China, the largest producer, consumer and importer of iron ore, produced 1.3 billion tonne (bt) of iron ore in 2012, accounting for about 44% of the world's output. The country's crude ore reserves as of 2013 stood at 23bt containing 7.3bt of iron - the fourth largest in the world. China's run-of-mine iron ore output is, however, of low quality, containing about 22% iron.
Over half of the nation's domestic iron ore production comes from mines located in Hebei and Liaoning provinces while Beijing, Shanxi province and Inner Mongolia are the other iron ore producing regions. Ansteel Mining, a wholly-owned subsidiary of Anshan Iron and Steel Group (Ansteel Group), is the biggest iron ore producer in the country.
Hamersley iron ore mining
Australia
Australia produced 519 million tonnes (mt) of iron ore in 2012 accounting for about 18% of global iron ore output. The country's estimated iron ore reserves of 35bt, containing 17bt of iron, makes it the world's richest iron ore reserves holder.
Iron ore mining in Australia is mostly concentrated in the Pilbara region of Western Australia which accounts for over 95% of Australia's iron ore output and hosts three of the eleven biggest iron ore mining operations in the world. Rio Tinto, BHP Billiton, Fortescue Metals Group (FMG) and Atlas Iron are the leading iron ore producers in the country.
Read more here
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Apparently china low quality ore still has 22% vs australia's 62%. However, China miners could easily triple their production and cut cost and not have to import anymore??
Any expert on iron ore refining into steel process?
Glencore-Rio Tinto deal won’t change iron’s race to bottom, says Alberto Calderon
PUBLISHED: 0 HOUR 16 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
JEMIMA WHYTE AND MATTHEW STEVENS
BHP, Rio fend off assailants and critics
Alberto Calderon, the man who led the strategy team for BHP Billiton’s aborted mega-merger with Rio Tinto, has said the iron market is in a “race to the bottom” with its surplus production, but says a Glencore-Rio Tinto deal would do little to alter that.
“If only one company cuts production, this only benefits the other big ones,” he said.
“Then again, if they all produce as much as they can, it’s a race to the bottom. Unfortunately, that is where we are now. Next year, the iron ore market will have a surplus of 250 million tonnes.”
He said China’s coal tax was further evidence of the market’s oversupply.
“We are now in times of excess supply, times where the buyers have the power and they will exercise this power to keep prices as low as possible.”
In an interview from New York with Nine’s Financial Review Sunday program, he also scotched the logic of a Glencore-Rio tie-up.
“Would it make sense if it’s a merger of equals, with no premium? Of course it makes sense for Glencore shareholders. Would it make sense for Rio shareholders? Of course not, they have the better assets.
“There has to be a premium, history would say around 25 per cent and you have to ballpark demonstrate that this deal needs to generate value greater than $20 billion... How are you going to generate that value if mergers of mining companies usually don’t have significant synergies?”
He said he was not entirely sure what was driving Glencore chief Ivan Glasenberg.
“Ivan has made a fortune out of being more clever than the market,” he said.
“At least Ivan is thinking against the market... I think we really don’t know what his total plan is, but surely its something broader than the Rio merger of equals idea. He surely knows that... the premium Rio will demand, he can’t afford... He must have something else.”
But he said it was unclear whether the majors’ policy of continuing to produce greater amounts of iron ore as demand fell was the right approach.
“I think it’s difficult to say, it all depends, I do think if I look at the majors, they are defensive right now. It’s fine to cut costs and try to increase productivity, but there has to be something else. There is merit in looking for growth in the current times. In that sense, Ivan is probably the only one of the large miners who is looking beyond the next months, who is looking how to grow. Being where others are not seeing, that’s why he has been so successful.”
Mr Calderon said Mr Glasenberg’s plan to reduce supply was unlikely to please the regulators, who would be keen to promote growth.
“Everything he has said goes against the DNA of the regulators,” he said.
Mr Calderon said the logic of the BHP-Rio deal had been proven, but warned the market was now in a different phase.
“This is not your usual cycle. We lived through the highest growth of the largest country in the world. We will never see again what we saw in the past 10 years.
“We’re going back to normal... That normality means again much lower margins.”
Mr Calderon said the return to “normal” commodities conditions made it harder for deals to stack up.
“When [iron ore] prices multiplied by seven between 2002 and 2008, a lot of things could happen. For example, the rationale for the BHP-Rio merger was putting together the two operations in the Pilbara, and hence bringing hundreds of millions of iron ore tonnes quicker to market. The value created would have been staggering.
“In today’s world, creating value through mergers is much more difficult.”
Australian fund managers have had a mixed response to the prospect of a deal. Glencore’s approach to Rio about a merger of equals leaked into markets last week.
Perpetual Investments’ head of equities, Matt Williams, said he would be reluctant to take Glencore’s scrip over Rio Tinto’s, noting Rio was well-run and had superior assets.
“I think I’d like to see a few more years’ track record for that company [Glencore], before I’d take their scrip for my Rio shares,” he said.
Platinum Asset Management’s Kerr Neilson said Glencore’s approach to Rio was “brave and dubious”.
“It seems early in the cylce,” he said. “We think the cycle has a long way to go downwards, so to be putting in bids when the market is adjusting is quite brave. Brave and dubious.”
Wavestone Capital’s Catherine Allfrey questioned what would happen to Rio’s surplus franking credits. Glencore is considering a secondary listing on the ASX, which would address the potential problem.
The Australian Financial Review
BY JEMIMA WHYTE
Jemima Whyte
Jemima writes about investment banking from our Sydney newsroom
Iron ore price jumps 4pc to $US83.10 a tonne
DANIEL PALMER BUSINESS SPECTATOR OCTOBER 14, 2014 7:42AM
THE price of iron ore continues to rebound amid hopes the Chinese economy may be turning a corner.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US83.10 a tonne, up 3.9 per cent from its previous close of $US79.90.
The pricing development furthers expectations that the commodity, which has lost more than 35 per cent this year, has finally found a base after touching a five-year low of $US77.50 a tonne a fortnight ago.
The upward move has largely been attributed to positive trade numbers out of China on Monday, with better-than-expected data boosting optimism the typical end-of-year iron ore stockpiling could again ignite the market.
Iron ore has seen a record three straight quarters of double-digit percentage declines amid worries about Chinese demand and rising supply from industry heavyweights Rio Tinto, BHP Billiton and Vale. It came to a head in September as the commodity’s value sunk by 12 per cent, with just three positive trading days recorded for the month.
Iron ore price in 4pc rebound amid boost in China data
THE AUSTRALIAN OCTOBER 15, 2014 12:00AM
Barry FitzGerald
Resources Editor
Melbourne
Rick Wallace
Journalist
Melbourne
A STRONG rebound in the iron price has turned producers of the steelmaking raw material from market pariahs to darlings in the space of 24 hours.
Iron ore climbed the most in two years, rising $US3.20 or 4 per cent, to $83.10 a tonne in response to improved economic data out of China, the world’s biggest steel producer. The price recovery only returned iron ore to its highest level since September 18, and it is still well short of its starting price for the year of $US135 a tonne.
But the punch back through $US80 a tonne raised expectations of a recovery in prices in the closing months of the year now that China’s holiday season is out of the way, and as closures of high-cost iron ore production in China and elsewhere soaks up the current surplus in supply.
This year’s price plunge saw equity values smashed by more than 70 per cent for higher cost producers. Leading producers Rio Tinto, BHP Billiton and Fortescue also came under price pressure.
But the 4 per cent bounce in the price was enough to fuel big share price recoveries yesterday. Atlas closed up 5.3c or 14 per cent to 42c, Mt Gibson added 8c or 18 per cent to 52.5c and BC Iron rallied 18.2c or 13 per cent to $1.59.
Mt Gibson’s performance was helped by the release of its September quarter report, which showed it was holding cash of $465 million (43c a share) at the end of the period. That was down from $520m at the end of June, but after $30m was spent on mining equipment and tax payments.
Rio’s share price climbed $2.35 or 4 per cent to $60.71, with renewed hopes for iron ore to get back to the $US90-$US100 a tonne to be helpful in its unfolding cold war with spurned suitor, the iron ore-deficient Glencore. BHP added 85c or 2.6 per cent to $33.45 and Fortescue regained 19c or 5.4 per cent to $3.65. Baillieu Holst analyst Adrian Prendergast said the iron ore price rise was the first sign that a seasonal uplift in iron ore demand was under way.
“China is now back online following its week-long national holiday, which typically sees a seasonal improvement in steel production,” he said.
“It is unlikely that the iron ore market will bounce back to previous levels as swiftly as it did in late 2012 during the last material spot price weakness, but we believe that we will see a gradual moderation of recent extreme volatility and that the spot price is more likely to recover gradually back towards a range of $US90-$US100 a tonne heading into 2015,’’ Mr Prendergast said.
Citi has updated its iron ore price forecast to $US87 in the fourth quarter. Japan’s Marubeni, a major stakeholder in Gina Rinehart’s Roy Hill project in WA, also called the bottom of the iron ore slump, saying prices would recover next year.
Rio Tinto calms investors over weak iron ore prices
Melbourne
RIO Tinto Group insists that tumbling iron ore prices won't halt the lowest-cost producer's plans to give money back to shareholders.
"We shouldn't panic when there's a blip in iron ore prices," Rio Chief executive Officer Sam Walsh told reporters on Wednesday in Sydney. He dismissed suggestions that the company wouldn't boost returns to investors when reporting profit in February, saying "we are committed to making a material increase".
In August, Rio raised its dividend and flagged further returns, saying it's on its way to becoming a "cash machine" as its cost-cutting drive starts to bear fruit.
His view is backed by JPMorgan Chase & Co, which said last month that iron ore's slump to five-year lows wasn't expected to prevent Rio and BHP Billiton from returning cash to investors.
The industry's focus on cost-cutting and share buyback programmes suggests that the sector may have reached the bottom of the cycle, BlackRock's Evy Hambro said on Bloomberg TV. ''The fact that management are now going down this path and looking to reward investors with increased returns - and we've seen the first buybacks in the industry - gives us grounds for a significant amount of optimism," he said.
BlackRock is among major mining investors that have campaigned for shareholders to get priority after a decade-long, US$618 billion investment spree that prompted asset writedowns and flooded metals markets.
Rio, which said last week that it had rejected a merger approach from Glencore Plc, rose 0.4 per cent to A$60.99 in Sydney trading, trimming its decline this year to 11 per cent. The wider market gained 0.7 per cent.
London-based Rio rebuffed an approach in July from Glencore chief executive officer Ivan Glasenberg that would have created a producer with leading positions in coal, iron ore and copper worth US$160 billion, usurping BHP as the industry's leader.
"I can well understand why there's interest because we're a pretty good business," Mr Walsh said on Wednesday.
Glencore is no longer actively studying an offer for Rio, the Baar, Switzerland-based company said last week. Under UK takeover rules, the producer and trader is barred from a renewed attempt for six months unless it obtains the Rio board's recommendation, a third party makes an offer for the company, or there are other material changes.
Iron ore prices have plunged to five-year lows on the back of expansions by Rio, Vale SA and BHP, adding to a global glut. Production increases by the big three may push the global surplus to 163 million tons in 2015 from 52 million tons this year, according to Goldman Sachs Group.
Rio, the second-biggest iron ore producer, forecasts shipments of 300 million tons this year, including output attributable to its project partners, it said in a statement. Rio de Janeiro-based Vale, the biggest exporter, forecasts output in 2014 of 312 million tons, it said last month. BLOOMBERG