Iron Ore Prices

Thread Rating:
  • 1 Vote(s) - 5 Average
  • 1
  • 2
  • 3
  • 4
  • 5
#91
Iron ore price slips 1pc amid volatility
DANIEL PALMER BUSINESS SPECTATOR OCTOBER 16, 2014 8:21AM

THE recent iron ore price recovery hit a hurdle overnight, with the commodity losing 1 per cent ahead of the wildest trading session seen on Wall Street this year.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US82.20 a tonne, down 1.1 per cent from its previous close of $US83.10.

The commodity has endured a rocky road this year, with rising supply from miners BHP Billiton, Rio Tinto and Vale and worries about Chinese demand ensuring three straight double-digit percentage falls in the first three quarters of the year.

It came to ahead through a worrying September, when prices rose just three times as the commodity lost 12 per cent for the month.

It has since recovered from a five-year low of $US77.50, set on September 30.
Reply
#92
ANGUS TAYLOR
Iron ore is a giant game of chicken

PUBLISHED: 9 HOURS 37 MINUTES AGO | UPDATE: 1 HOUR 4 MINUTES AGO
print-font+fontReprints & permissions
Iron ore is a giant game of chicken
Game theory can shed light on iron ore’s game of chicken. Photo: Greg McKenzie
ANGUS TAYLOR

The price of iron ore is on everyone’s lips, and the obsession is warranted. For every drop of $1 per tonne, Australia loses about $600 million a year in revenue – and rising.

Of that, $200 million goes to governments and the balance goes to shareholders. These are seriously big numbers and big stakes.

Ivan Glasenberg, chief executive of Glencore, is telling Rio Tinto’s shareholders that their company doesn’t get it and that a merger will fix the issue.

West Australian Premier Colin Barnett is telling us that such rampant expansion is unhealthy. Rio Tinto’s Andrew Harding is reminding everyone that Rio’s margins are very attractive, so extra volume is good.

The iron ore majors are engaged in a game of chicken, the likes of which has not been seen before.

The parameters are clear. We can still expect some solid growth in global demand for iron ore, but this isn’t the real prize. In the coming months and years the price will settle at unprofitable levels for high-cost mines. Costly production, particularly privately owned Chinese mines, will exit the market.

As these mines inevitably close – and it will be painful – the surrendered volumes are an extremely valuable catch to low-cost producers and their host country. Questions remain over who gets to produce those tonnes.

The players are also clear. Rio Tinto and BHP Billiton have the advantage of well-prepared expansions in the Pilbara close to market. Vale, the Brazilian iron ore monster, has the lowest cost of production, but much further to ship to China.

Meanwhile, Rio can choose between expansions in Australia or Guinea in West Africa. The costs of other producers are too high to be relevant, with the possible exception of Fortescue Metals Group.

PLENTY AT STAKE
The value of these expansions is enormous to Australia. If we can grab an extra 100 million tonnes it is worth close to $1 billion of recurring gross revenues, and at least $200 million in annual tax revenue. The expansions will require as much as $20 billion of investment – exactly what we need as other mining investment slows.

Game theory can shed light on such a game of chicken. First, the player with the lowest costs typically captures more of the market, as the French mathematician Antoine Cournot demonstrated in 1838.

All of the majors are pushing the envelope on costs, and telling us so. Vale is introducing supersized ships to address its distance from China.

Second, signalling your intention to “lock the steering wheel” will cause your competitors to “swerve” (in this context, halt or slow expansions). The economist Heinrich von Stackelberg worked this out in 1934. BHP has outlined plans to increase iron ore output by 65 million tonnes to 290 Mt by the end of 2017.

Rio Tinto, meanwhile, plans to ramp up output from its current 290 Mt to 330 Mt by 2015, not including its planned development in Guinea.

Third, the biggest producer, Vale – which has the most to lose – has blinked. No wonder Vale’s director of planning has said “everyone is nervous about the iron ore price”. None would be more nervous than Vale. Vale has the strongest incentive to slow global expansions, and despite extraordinary geological resources has been slow to expand, hindered by Brazil’s complex licensing process.

Finally, secretly preparing to “swerve” (that is, to reduce production and expansions) at the last moment is typically smart for large players, so long as this really is a secret. But that requires flexibility far greater than Australia’s current regulatory regime permits.

FLEXIBILITY THE WAY FORWARD
So if Australia is to win this game, what do we need to do? We clearly need to stop jawboning Rio Tinto and BHP Billiton to halt their expansions. Doing so only gives our competitors a glimmer of hope.

We need to ensure that our producers are able to get their operational and expansion costs down. The government’s focus on industrial relations in major development projects is important in this context. But more is needed.

Our miners need to be ready to move quickly and flexibly. This means reducing unnecessary regulatory constraints, as the government has done by streamlining environmental approvals. We must avoid any further risk of a cumbersome access regime coming into place, particularly given that our major producers are vertically integrated exporters.

And, of course, we have to avoid any risk of reintroducing the mining tax, with all the uncertainty that would create.

The Business Council of Australia has told us that we need an industry policy that builds on our competitive advantages. Policies supporting our biggest export industry to win do just that.

Angus Taylor is the federal member for Hume. He advised Australian and global organisations on strategy before entering politics.
The Australian Financial Review
Reply
#93
Iron ore juniors feeling the heat as price stays low
THE AUSTRALIAN OCTOBER 16, 2014 11:53AM

Sarah-Jane Tasker

Reporter
Sydney
MORE than a quarter of global iron ore supply is loss making at current prices and juniors will need to cut costs to survive as the major miners rapidly expand and push other producers up the cost curve.

The steelmaking commodity has dominated headlines again this week as Western Australia’s Premier accused BHP Billiton and Rio Tinto of “acting in concert” in their aggressive iron ore expansion plans into an oversupplied market. The extra tonnes into the market is keeping the price at five-year lows, which is hurting the smaller producers.

UBS analyst Daniel Morgan, in a detailed report on the sector, said that the oligopoly structure of the iron ore market that supported elevated industry returns was under threat given new entrants in the market, such as Gina Rinehart’s Roy Hill mine.

“The majors have a strong incentive to bring new tonnes to market as quickly as possible to preserve market structure,” he said.

“An iron ore price in the $US80 a tonne to $US90 a tonne range may mean greater long-term returns than one that brings overcapacity.”

The price of iron ore dipped again overnight, after a slight recovery earlier in the week, falling 1.5 per cent to $US82.55 a tonne.

Mr Morgan said that the iron ore game had changed from a growth opportunity into a battle for market share.

He said that seaborne producers would try to displace high-cost domestic supply in China, but a core would likely remain competitive.

Projects outside the majors need prices of around $US90 a tonne to $US100 a tonne to earn a return, but once built, break-even at around $US60 to $US90 a tonne.

Mr Morgan said that not all loss-making producers would exit and would instead fight to cut costs.

“But, we believe plenty are unable to compete and will make way for the new tonnes,” he said.

UBS has cut its forecasts for iron ore to $US85 a tonne for 2015 and $US82 a tonne for 2016, which is down from a previous forecast of $US103 a tonne.

On Australian stocks, UBS analyst Glyn Lawcock said that some would struggle in the low price environment given they had business models based on a $US90 a tonne long-term price or better.

“Our forecast long term price of $US75 a tonne means the juniors would need to cut costs materially to survive,” he said.

Of the juniors, UBS is most concerned about Atlas Iron, which it said is the only junior with net debt and is forecast to increase net debt over the next 12 months.
Reply
#94
Iron ore price sinks as global fears rise
DANIEL PALMER BUSINESS SPECTATOR OCTOBER 17, 2014 7:41AM

IRON ore has endured a second day of significant falls, drifting 2 per cent lower overnight amid simmering concerns about the prospects for global growth.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US80.50 a tonne, down 2.1 per cent from its previous close of $US82.20.

The downward move extends the commodity’s losses to over 3 per cent over the past two days after it had rebounded sharply this month from the five-year low of $US77.50 reached on September 30.

The latest weakness can largely be put down to market turbulence in the wake of rising fears about the European economy in particular, though last night’s falls also followed a downgrade to price forecasts by investment bank UBS.

UBS analyst Daniel Morgan said the firm now expects iron ore to average $US85 a tonne in 2015 and $US82 a tonne in 2016, well shy of previous expectations for prices of about $US103 a tonne.

“The iron ore game has changed from a growth opportunity into a battle for market share,” Mr Morgan said in a note, adding that the market heavyweights will continue to aggressively expand production.
Reply
#95
Rio Tinto, Fortescue leaders clash over ‘flawed strategy’
THE AUSTRALIAN OCTOBER 18, 2014 12:00AM

Paul Garvey

Resources Reporter
Perth
Rio Iron Ore
Rio Tinto’s Andrew Harding in Perth. Source: News Corp Australia
A HIGH-profile war of words has broken out between Rio Tinto iron ore boss Andrew Harding and Fortescue Metals chief Nev Power, with Fortescue accusing Rio of pursuing a flawed strategy and Mr Harding questioning Mr Power’s recollection of history.

At a breakfast in Perth hosted by stockbroker Morgans yesterday, Mr Power warned that the moves by iron ore giants BHP ­Billiton and Rio Tinto to ramp up output in a falling market could ultimately cost the company’s ­executives their jobs.

He said he was “somewhat amused” by the iron ore giants’ plans to continue growing their output despite the steep fall in iron ore prices this year.

“When there are higher returns in the future by investing we should invest, and when we don’t see those incentive prices and returns we should not be investing,” Mr Power said.

“Investing because you’re more profitable than the next guy seems to be a very flawed strategy to me and one that will inevitably lead to self-inflicted wounds, low returns to shareholders, and probably replacement of management teams like we’ve seen in some of those companies in the past.”

The comments drew a sharp ­response from Mr Harding at a CEDA function in Perth late ­yesterday.

“I don’t feel at all worried about my job but clearly it is top of mind for him,” Mr Harding said. “Interestingly enough we both commenced our most recent expan-sions ... in 2010. And I can say that Rio Tinto is a producer of very high-quality product and significantly lower-cost production, so I can see why Nev is a little bit distressed, possibly even ­panicking.”

Mr Harding said he “completely struggled” to see where Mr Power was coming from.

“Rio Tinto is clearly doing what we said we would do, rather than doing one thing and saying another,” he said.

Iron ore prices have fallen more than 40 per cent this year as prices respond to a significant rise in ­supply — predominantly from major Australian producers BHP Billiton, Rio Tinto and Fortescue — and an easing in demand out of China.

Both BHP and Rio, which are the two lowest-cost iron ore ­producers in the world, have flagged their desire to continue growing their output.

The move prompted a tough response from West Australian Premier Colin Barnett, who accused the pair of colluding to try to drive smaller iron ore miners out of business. He has since recanted the accusations.

Mr Power said: “I’m not quite sure why anyone would want to be the last man standing in a low-price, low-return environment.

“For me, what we’re interested in the iron ore industry is ensuring we’ve got high returns to our shareholders.”

Separately, Fortescue late yesterday was planning to file an appeal over the recent Supreme Court decision that it should start negotiations with junior iron ore hopeful Brockman Mining, which wants to access Fortescue’s Pilbara infrastructure network.
Reply
#96
Iron ore flood to continue if profitable, says BHP
THE AUSTRALIAN OCTOBER 18, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
BHP turns the screw on competition

BHP Billiton iron ore chief Jimmy Wilson says the majors will keep flooding the over­supplied iron ore market with new supply until the price falls to a level where they do not see decent returns.

And with China’s state-owned iron ore mines now all expected to keep producing, even at a loss, the view within BHP ­appears to be that the price will fall to a level where Fortescue Metals Group and Brazil’s Vale will face decisions on whether to cut production.

“We’ll oversupply in the medium term, and how that plays out just depends on how quickly the price gets to an inflection point where you drop below inducement price for the majors,” Mr Wilson said.

“When you start dropping below that inducement price, capital will no longer be deployed and you’ll get to a ­situation then where demand starts outstripping supply.”

Mr Wilson would not say what the inducement price was.

But UBS analysts took a stab this week and as a result cut long-term iron ore price assumptions from $US89 a tonne to $US75.

“The big three’s (BHP, Rio Tinto and Vale’s) projects have incentive prices of around $US55-$US90 a tonne, with an average of $US75,” the bank said.

Iron ore prices have slumped faster than the majors expected this year, falling from $US135 a tonne to about $US80 as relentless Australian expansions by BHP, Rio Tinto and Fortescue have put the market into oversupply for the first time in a ­decade.

Compounding the over­supply has been the fact high-cost Chinese production has not been withdrawn from the market as quickly as expected.

Both BHP and Rio have noted in the past fortnight that the 140 million tonnes of state-owned (as opposed to private) annual production is still operating at full speed, and both miners now believe it will not be shut down, even if it is unprofitable.

All other things being equal, this means more price pain than previously expected.

It is understood BHP believes that as the price falls, marginal cost production will move from China to Brazil and Australia, and the more expensive majors, not just the high-cost smaller players, will be the marginal ­players.

UBS estimates Fortescue has a break-even cost of $US70 a tonne, landed in China, while Vale has a break-even cost of $US67.

BHP and Rio are $US47 and $US43 respectively, illustrating their bigger price fall cushions.

Lower costs may even benefit BHP and Rio in the long run, by keeping out new higher-cost production which, once it is built, will run at anything above break-even prices.

UBS said outside the majors, new projects would require prices of between $US90 and $US100 to go into construction, but once they were up and running they would still make cash and stay open at prices of $US60-$US90.

Mr Wilson’s Rio counterpart, Andrew Harding, emphasised this point earlier this month when he said if Rio did not continue expanding, there were 32 projects around the world that would go ahead instead.

“Major miners may want prices below $US90 a tonne,” UBS said.

“An iron ore price in the $US80-$US90 a tonne range may mean greater longer-term returns than one above that brings over­capacity to the market.”

Mr Wilson said he was confident the rules and royalties under which BHP operated in WA would not change, despite recent comments from Premier Colin Barnett saying BHP and Rio should remember who their landlord was and should hold back on their expansions, which were pushing down the price.

“I believe that the government’s very responsible,” he said.

“We have deployed a huge amount of capital, as have other organisations, over an extended period of time, against a fixed set of rules. It is unlikely that those rules change in the foreseeable future.”

Mr Wilson would not say how long he thought the iron ore market would be in oversupply.

But JPMorgan analysts recently reported, after a tour of the operations, that BHP predicted the oversupply would last “through 2016”.

Mr Wilson said BHP would not curtail its growth and would continue to squeeze as much low-cost iron ore on to the market as it could.

“We are going to leverage our installed capacity to its maximum,” he said.

“We’re going to go as hard as we can on driving as much volume through our installed capacity as we physically can.”
Reply
#97
Rio Tinto, Fortescue leaders clash over ‘flawed strategy’
THE AUSTRALIAN OCTOBER 18, 2014 12:00AM

Paul Garvey

Resources Reporter
Perth
Rio Iron Ore
Rio Tinto’s Andrew Harding in Perth. Source: News Corp Australia
A HIGH-profile war of words has broken out between Rio Tinto iron ore boss Andrew Harding and Fortescue Metals chief Nev Power, with Fortescue accusing Rio of pursuing a flawed strategy and Mr Harding questioning Mr Power’s recollection of history.

At a breakfast in Perth hosted by stockbroker Morgans yesterday, Mr Power warned that the moves by iron ore giants BHP ­Billiton and Rio Tinto to ramp up output in a falling market could ultimately cost the company’s ­executives their jobs.

He said he was “somewhat amused” by the iron ore giants’ plans to continue growing their output despite the steep fall in iron ore prices this year.

“When there are higher returns in the future by investing we should invest, and when we don’t see those incentive prices and returns we should not be investing,” Mr Power said.

“Investing because you’re more profitable than the next guy seems to be a very flawed strategy to me and one that will inevitably lead to self-inflicted wounds, low returns to shareholders, and probably replacement of management teams like we’ve seen in some of those companies in the past.”

The comments drew a sharp ­response from Mr Harding at a CEDA function in Perth late ­yesterday.

“I don’t feel at all worried about my job but clearly it is top of mind for him,” Mr Harding said. “Interestingly enough we both commenced our most recent expan-sions ... in 2010. And I can say that Rio Tinto is a producer of very high-quality product and significantly lower-cost production, so I can see why Nev is a little bit distressed, possibly even ­panicking.”

Mr Harding said he “completely struggled” to see where Mr Power was coming from.

“Rio Tinto is clearly doing what we said we would do, rather than doing one thing and saying another,” he said.

Iron ore prices have fallen more than 40 per cent this year as prices respond to a significant rise in ­supply — predominantly from major Australian producers BHP Billiton, Rio Tinto and Fortescue — and an easing in demand out of China.

Both BHP and Rio, which are the two lowest-cost iron ore ­producers in the world, have flagged their desire to continue growing their output.

The move prompted a tough response from West Australian Premier Colin Barnett, who accused the pair of colluding to try to drive smaller iron ore miners out of business. He has since recanted the accusations.

Mr Power said: “I’m not quite sure why anyone would want to be the last man standing in a low-price, low-return environment.

“For me, what we’re interested in the iron ore industry is ensuring we’ve got high returns to our shareholders.”

Separately, Fortescue late yesterday was planning to file an appeal over the recent Supreme Court decision that it should start negotiations with junior iron ore hopeful Brockman Mining, which wants to access Fortescue’s Pilbara infrastructure network.
Reply
#98
The big boys are doing what they are good at: counter cyclical ramp of capacity to extinguish competitors. High prices are long term negative for commodity business because everyone will rush in either with higher capacity from their increased cashflows or new entrants trying to strike gold. There's very little what the big boys can do but ride it

OTOH a downturn is what separates the good and the bad, thats where strategically the big boys will use their cash hoard and balance sheet
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#99
Miners face downgrade after Moody’s lowers iron ore expectations
THE AUSTRALIAN OCTOBER 21, 2014 12:00AM

Paul Garvey

Resources Reporter
Perth
MOODY’S Investors Service could downgrade its credit ­ratings on Australia’s more ­marginal iron ore producers in the coming weeks after the ­ratings agency slashed its price expectations.

Moody’s is now modelling for iron ore to range between $US75 and $US85 a tonne through 2016, down from its previous expectations of a range of $US95-$US105 a tonne.

Any downgrades from the ratings agency could hasten equity raisings among the higher-cost producers struggling to repay debts after a 40 per cent fall in iron ore prices this year.

The deep cut to expectations reflects a continued surge in supply and “muted growth” in global steel production.

Moody’s senior analyst Matthew Moore told The Australian the agency would meet with Australian iron ore miners over the coming months if lower prices persisted.

“We will speak to issuers about their plans if these pricing levels materialise over the medium term, and look at their options for the balance sheet to absorb the weaker earnings,” Mr Moore said.

The downgrade in expectations reflects what Moody’s called an “aggressive supply push by major iron ore producers”.

Both BHP Billiton and Rio Tinto have made it clear in recent weeks they intend to continue with planned capacity expansions. The plans have angered West Australian Premier Colin Barnett while Fortescue Metals Group chief executive Nev Power said the majors’ strategy was “flawed”.

BHP and Rio were expected to add 69 million and 70 million tonnes of capacity respectively by 2018, Moody’s said, while Brazil’s Vale would grow its annual output by 105 million tonnes over the same timeframe. Fortescue’s recently completed expansion will add another 31 million tonnes.

The agency said low-cost producers like BHP and Rio would have more tolerance to absorb lower prices in the near term than companies such as Fortescue and Atlas Iron.
Reply
China's Sept steel output close to peak level

REELING FROM SUPPLY GLUT: Mills are still close to full capacity despite weak demand, and global iron ore miners are pushing ahead with expansion plans. PHOTO: REUTERS
22 Oct5:50 AM
Beijing

CHINA'S daily crude steel production rose 1.3 per cent in September to the highest level in three months, according to data from its statistics agency.

This suggests that mills are still close to full capacity despite weak demand and a steep slump in prices. Persistently high output from the world's top producer could worsen prices of Shanghai rebar futures, which sank 13 per cent last month, and also dent spot iron ore prices that are reeling from a supply glut as global miners of the steelmaking ingredient push ahead with expansion plans.

China produced 67.54 million tonnes of crude steel in September, down 2 per cent from the previous month and level with the corresponding 2013 month, the National Bureau of Statistics reported on Tuesday.

But the daily output rate rose to 2.25 million tonnes from 2.22 million tonnes in August, driven by a slight improvement in industrial activity. This was the highest since June when output touched a record of 2.31 million tonnes per day.

"The 1.3 per cent increase matches the recovery in electricity consumption versus August as well as the slightly better monthly PMI results," said Standard Bank analyst Melinda Moore, referring to data showing that growth in China's manufacturing sector held up in September.

A slowdown in China's economic growth - most recently to the lowest level since the 2008/09 global financial crisis - has shrunk steel demand in China, aggravating overcapacity problems in the sector.

While there are no signs that conditions will improve in the final quarter of the year, steel firms have continued to pursue a strategy based on outlasting rivals. "Mills prefer market share maintenance, hoping the strong will survive and the weak will fall away," Ms Moore said.

Persistent overproduction in the world's biggest steel market has driven prices to record lows this year and, despite a surge in imports, iron ore prices have also slumped around 40 per cent since the beginning of 2014.

Crude steel output over the first three quarters of the year reached 618 million tonnes, up 2.3 per cent on year, the National Bureau of Statistics said.

Mounting losses and financing problems have already forced a number of steel producers to halt their operations, but the impact on overall output has been negligible, with other mills stepping in to fill the gap. Reuters
Reply


Forum Jump:


Users browsing this thread: 2 Guest(s)