12 / 12 / 09 We can't afford to ignore our coal resources AS world leaders gather in Copenhagen for the climate change summit, the UK delegation sho..
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22 / 06 / 09 Anglo stresses early-stage nature of Xstrata 'proposal' The board of diversified mining group Anglo American confirmed on Sunday that it had indee..
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14 / 04 / 09 China economy shows signs of recovery China's economy is showing signs of a nascent recovery, but even officials who want to boo..
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02 / 01 / 09 China turns screws on iron ore giants JUST days into the new year the signs from China for our battered big miners are ominous.
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26 / 08 / 10 in
BHP warns steel surplus will hit iron ore demand
BHP Billiton, the world's biggest miner, warned on Tuesday that a global surplus of steel will hit “near-term demand” for commodities such as iron ore and coking coal.
“With global steel production running ahead of real demand in the quarter ended June 2010, we expect output to soften from the record highs achieved in April,” the miner said in its annual results report. Steelmakers in China, Japan, Europe and the US have already announced output cuts for the second half of the year.
The price of both commodities has doubled since last year as global steel production surged, led by Chinese companies, boosting the profitability of BHP Billiton and rival miners Rio Tinto and Vale of Brazil.
But the miner said the medium-term outlook was positive, particularly for iron ore where it expected “a lack of low-cost supply response” over the next few years.
The commodities market is paying more attention to iron ore and coking coal after changes to pricing mechanisms in the industry. Earlier this year, the 40-year-old traditional pricing system for both raw materials, based on lengthy negotiations and annual price rates, collapsed.
The new system, based on shorter-term quarterly contracts which closely track the price of iron ore and coking coal on the spot market, has emerged.
Spot iron ore prices hit a 2-year high above $180 a tonne in April, only to fall back, hitting a low of $117 a tonne in June. Since then, prices have recovered. On Monday, benchmark spot iron ore prices from Australia – which feature 62 per cent iron content – traded at $147.4 a tonne, a level which analysts believe could signal a ceiling for the short term, with a floor around $120 a tonne.
China is by far the world’s largest importer of the steel making commodities, accounting for half of the market, followed by Japan, South Korea and Germany.
BHP was far more positive for base metals, particularly copper. It said that consumers were restocking copper and premiums – the amount paid above the London Metal Exchange prices for physical supplies – continued to rise.
“Elsewhere, there is weaker demand for those commodities where short-term demand is likely to be satisfied by inventory rather than primary supply,” the miner said, in a reference to aluminium, where stocks are at record high levels.
BHP Billiton reiterated its “cautious” view for global economic growth over the short term, saying that it expected China’s economic growth to slowdown in the second half of the year and in 2011. Besides, it warned that “uncertainty” continued to surround the developed world “as governments adjust fiscal policies following a period of significant stimulus and subsequent increase in sovereign debt levels.”
“Despite our short term caution, we remain positive on the longer term prospects for the global economy, driven by the continuing urbanisation and industrialisation of emerging economies,” the miner said.
“In the medium term, we expect commodity demand to remain heavily dependent on emerging market demand as the gradual withdrawal of government stimulus is expected to constrain growth in the developed world,” it said, adding that while China’s rapid growth is expected to slow, “domestic consumption is expected to remain strong and investment spending is likely to remain commodity intensive.”
On other commodities markets on Tuesday, gold prices rose to $1,238 a troy ounce, up 0.7 per cent and the highest since early July, boosted by investors’ worries about the global economy and US dollar weakness.
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18 / 08 / 10 in
Copper falls, China worries offset risk appetite
Copper eased on Wednesday, having touched a one-week high earlier, as worries over slowing growth in top metals consumer China offset improving risk appetite and falling inventories.
"With copper and base metals, if you want to push prices higher you will find arguments for it -- lower inventories, risk appetite coming to the market and better equity performance," a metals analyst said.
"But if you would like to see the other side, you can see other arguments such as the slowdown in China in the second half of the year ... and at current prices, investment demand is not at the same levels as before," he added. Earlier prices in the red metal touched a one-week high at $7,409.
Inventory flows into LME warehouses are also on the radar, after a recent trend of falling stocks suggested demand was improving.
Aluminium traders will be watching to see whether inflows of over 70,000 tonnes seen in the previous session, will be repeated.
Although LME stocks stand at 4.4 million tonnes, much is tied up in financing deals making for tight supplies of metal, dragging the market into backwardation.
"It will be volatile," the analyst added on aluminium. "After yesterday's inflows, it is still to be seen whether there are more stocks coming into the warehouses, given the backwardation."
PRICES
* Three-month copper CMCU3 on the London Metal Exchange was at $7,356.25 a tonne by 0731 GMT compared with Tuesday's close of $7,382 per tonne while aluminium CMAL3 was $14 lower.
09 / 08 / 10 in
Iron ore's quarterly pricing system passes first hurdle
A new pricing system for iron ore, the bulk commodity used in steelmaking, has survived its biggest test after a contentious move to quarterly prices avoided feared defaults on supply deals that killed annual pricing nearly two years ago.
The way iron ore is traded has a big impact on the global economy as changes in the cost of the ore are passed through to the price of steel and everyday consumer products from cars to washing machines.
It is critical, too, for the profitability of the world’s biggest miners such as BHP Billiton and Anglo American and steelmakers such as ArcelorMittal and Baosteel of China.
Miners including Vale, Rio Tinto and BHP, which account for about 70 per cent of the seaborne iron ore market, have been selling the mineral at about $145 a tonne since July under quarterly prices, which were introduced in April by suppliers to the dismay of steelmakers.
Despite warnings that steel prices would rise sharply as a result – and fears that buyers could default again were spot prices to fall – the transition has been smooth, according to mining executives and iron traders.
Steelmakers in China, Japan, South Korea and Europe, they say, have not pulled out of their quarterly contracts, even as spot prices have fallen below contract prices. Spot quotations were as low of $117 in late July. It was the difference between these sets of prices that led to a wave of defaults in late 2008 and early 2009.
Then, steelmakers walked away from their annual contracts to buy much cheaper iron ore on the spot market. The defaults shocked conservative miners such as Vale and Rio Tinto and brought an end to the traditional system of annual contracts based on bilateral and lengthy price negotiations.
It also led to the move to quarterly agreements linked to the spot market. “The price system is rolling very, very well,” says Jose Carlos Martins, executive director of ferrous minerals at Vale of Brazil, the world’s largest iron ore miner. “Customers are fulfilling their commitments, both on prices and on quantities.”
Some traders believe, though, that the pricing system has further to evolve and the market could move from quarterly to monthly or even pure spot pricing. Tom Albanese, chief executive of Rio Tinto, believes the system has not yet being fully tested. “We need to test the system both ways, with prices up and down.”
Mining and steelmaking executives say that the shorter span of the quarterly contracts means steelmakers no longer have an incentive to default on contracts.
“They wait and stick with the contracts as they know that quarterly prices could come down in three months,” says a senior mining executive in Australia. The price of iron ore under the October-December quarterly contracts could drop to about $120 a tonne from $140-$145 in July-September, according to estimates.
Many steelmaking executives say they would prefer a return to annual pricing. Executives from both sides agree that the inevitable gap between spot and quarterly prices means the system is always under stress and that further changes to the way iron is traded are therefore likely.
Melinda Moore, commodities analyst at Credit Suisse in London, says the current system is likely to “prove a short-lived pit-stop on the evolutionary path towards” spot pricing. She says that disagreements about iron ore pricing for the third quarter “abound throughout Asia and Europe”. Another problem is price formulas. In general, quarterly contracts are based on a three-month average of price indices for the period ending one month before the onset of the new quarter. To resolve the formula problem some companies have signed contracts based on one- and two-month averages.
Vale acknowledged this tension last week in a conference call with investors, saying it was open to changes. “I think the quarterly system will stay ... but the answer will be given by the market,” Mr Martins said. “We need a system that can cope with the volatility, I believe that the quarterly price can cope with that.”
01 / 08 / 10 in
Exxon Mobil Is in Talks to Develop China Gas Field
Exxon Mobil Corp. is in talks with PetroChina Co. to jointly explore and develop an unconventional gas block in the resource-rich Ordos basin in northern China, according to a person familiar with the matter.
A successful conclusion to the talks would mark the entry of another global energy major into a huge but undeveloped sector that China hasn't been able to develop because of a lack of technical expertise.
The discussions have been under way since early June. If they succeed, the companies will sign a production-sharing contract and drill appraisal wells, the person said.
A PetroChina official said the company is interested in developing unconventional gas in China and noted that there has been success in the development of unconventional gas in the U.S. from, for example, shale.
He wouldn't confirm if talks with Exxon Mobil are under way but said agreements of this sort with foreign partners would only be announced when deals were settled.
Exxon Mobil China media official Sarah Du declined to comment.
The U.S. company is well-established in China's downstream, or refining, sector, including partnerships with China Petroleum & Chemical Corp., or Sinopec; the Fujian provincial government; and Saudi Aramco in a $4.5 billion refining and petrochemical complex in Fujian province.
In March, Royal Dutch Shell PLC signed a 30-year contract with China National Petroleum Corp., parent company of PetroChina, to jointly develop tight-gas reserves in central China's Sichuan Province.
Tight gas is natural gas contained in rock. The rock must be fractured or broken open to release the gas.
France's Total SA expects the Chinese government will approve its tight-gas joint-venture project, also in the Ordos Basin, "in a few months", Jean-Marie Guillermou, senior vice president for Asia-Pacific, exploration and production, said in June. CNPC will be the operator of the field, and Total will have a 45% stake, he said.
Earlier this month, BP PLC and PetroChina agreed to cooperate in coal-bed methane development at the Sha Erhu block at Tuha basin in Xinjiang Uighur Autonomous Region.
Also, Sinopec is working with BP in shale-gas resource assessment in China's Guizhou and Jiangsu provinces.
CNPC is keen to gain the know-how to develop such gas deposits. In June, it signed an initial agreement with Canada's Encana Corp. to develop shale-gas reserves in Canada, under which it would "gain an advanced understanding of unconventional natural-gas development through an ongoing sharing of technical knowledge," Encana said at the time.
Exxon demonstrated its interest in unconventional gas last year with its $41 billion purchase of XTO Energy Inc, which has major tight-gas assets in the U.S.
20 / 07 / 10 in
Falling demand from Chinese steel mills hits ore price
A SLOWING Chinese economy has led Credit Suisse to slash iron ore price forecasts for next year by 20 per cent.
This also prompted it to also cut the rating on BHP Billiton to neutral and slash the big miner's profit forecast by $US4 billion ($4.6bn).
In its most recent quarterly commodities review, Credit Suisse chopped its 2010 iron ore price forecast by $US23 a tonne to $US106 and for 2011 from $US132 to $US104.
Analysts at the bank said Chinese government cooling measures had cut steel production dependent on iron ore imports by about 4 million tonnes a month. Concerns about Europe have led to steel demand being reduced there by up to 2 million tonnes a month across the continent.
"Virtually from the minute we published our last quarterly price update, negative macro news sent bulls to bears, depressing the global steel sector and all its rating raw materials," the report said.
In the past three months, iron ore spot prices at Chinese ports slipped 35 per cent.
Despite the drop in prices from last quarter, miners would still realise major gains in the next two years.
"With a rebound expected in China's economy by the second quarter of 2011, we expect iron ore prices to remain range-bound in the $US100 to $US120 a tonne band for much of 2011 and 2012," Credit Suisse analyst Paul McTaggart said.
For BHP, the lower iron ore prices and a fall in other commodity-price estimates mean a reduced 2010-11 earnings forecast of $US21.7bn, down from a previous forecast of $US25.8bn. Because of probable negative near-term catalysts, Mr McTaggart also dropped his rating on BHP from outperform to neutral, making Rio Tinto a better investment recommendation.
He said the company's Gulf of Mexico costs would probably increase significantly after regulatory changes following BP's Deepwater Horizon explosion.
There was also a real chance the $US116bn iron ore merger with Rio would not be realised, Mr McTaggart said.
The bank left its rating on Rio Tinto at outperform despite slashing its 2011 earnings forecast by 19.5 per cent, or $US3.4bn, to $US14.17bn.
"Should the proposed iron ore JV with BHP Billiton not be realised, Rio would emerge in a position of strength. Rio is our preferred large cap miner," Mr McTaggart said.
Credit Suisse also cut its uranium price forecast for 2010 by 20 per cent to $US43 a tonne.
"Rampant mine development in Kazakhstan has over-supplied the market in the short term," the bank said.
Separately, Credit Suisse also downgraded Fortescue Metals Group to underperform, from outperform, and cut its target price from $6 to $4.50 a share after Fortescue's quarterly report last week revealed lower spot prices than expected.
UBS analyst Glynn Lawcock was not so harsh, keeping the Andrew Forrest-led miner on a buy rating with a target price of $5.50, down from $6 previously but a lot higher than the $4.04 the shares closed at yesterday.
12 / 07 / 10 in
Grange Seeking China Debt Talks for Iron Ore Project
Grange Resources Ltd., Australia's largest iron ore pellet producer, is seeking debt funding from China to help finance a A$1.8 billion ($1.6 billion) iron ore mine in Western Australia.
“We will be talking to financiers in China in the not too distant future to shore up the debt finance that we need for that,” Russell Clark, chief executive officer of Perth-based Grange, said today in a phone interview. “I’m hoping to get it largely in place in the next six months.”
Grange’s largest shareholder Jiangsu Shagang Group Co., China’s biggest closely held steelmaker, will arrange debt for as much as 70 percent of the cost of the proposed Southdown mine, he said. Iron ore prices may be 5 percent higher next year than this year because of supply constraints, Goldman Sachs JBWere Pty said in a report last week.
“The fundamentals of growth in China and India remain, the fundamentals of supply constraints remain,” Clark said. Grange is studying an increase in the proposed annual capacity of Southdown to 10 million metric tons of iron ore concentrate a year, from the initial target of 6.6 million tons, he said. The mine, a joint venture with Japan’s Sojitz Corp., may start output toward the end of 2013, he said.
Grange gained 3 percent to 51 cents at 1:24 p.m. Sydney time on the Australian stock exchange, giving it a market valuation of A$587 million. Grange also produces iron ore pellets from the Savage River mine in Australia’s Tasmania state.
02 / 06 / 10 in
Vale to bump ore prices up in Q3
Brazilian mining giant Vale SA, a producer of iron ore, said ore prices for the third quarter would rise according to the average market price over the previous quarter.
"The second quarter price (that Vale has signed with Chinese steel mills) is much lower than the spot market price, and the contract price in the third quarter will move up based on the average market price in March-May period," Jose Carlos Martins, Vale's executive director of iron ore, told reporters on Tuesday.
The talks on June prices with Chinese customers have started, but not concluded yet, he said.
"We will follow a formula, which is based on the average market price over the previous quarter, no matter whether prices go up or down in the future," said Roger Agnelli, president and chief executive of Vale. Both Martins and Agnelli declined to give specifics on the price hike.
Earlier reports said Vale would increase iron ore prices by 35 percent on average, starting July 1, calculated by index prices.
Agnelli told reporters that Vale is not limited to using one index to set quarterly iron ore prices. "We are using indexes that are accepted by clients and reflect the market," he said.
Currently, Platts, the Metal Bulletin and the Steel Index are publishing iron ore indexes.
Platts calculated the new ore price with 62 percent ore content touching $158.8 per ton free on board (FOB) for the third quarter, based on the average China spot market price between the March-May period.
"That is a 33 percent increase compared with $119.1 per ton FOB that Vale offered us in the second quarter," said an executive at a private steel mill based in Hebei province.
Chinese steel mills have been complaining about the difficult situation driven by the weakened steel prices and the rising raw material costs imposed by the top three global miners, Vale, BHP Billiton and Rio Tinto.
Steelmakers have had to cut product prices for June after the government came out with policies to cool down the realty sector.
"Iron ore prices are being set by the market, not fixed by miners," said Agnelli. "The market is formed by buyers and sellers. Vale is reflecting what happens today in the market."
Martins said Vale expects to ship about 140 million metric tons of the material to China this year, similar to shipments last year.
Market share in China may drop this year as it expands shipments to other countries as the world economy recovers.
"There is a lot of competition between the volume we sell to China and the volume we sell to other markets," he said.
Iron ore imports by China rose 42 percent year-on-year in 2009 to a record 628 million tons.
Source: China Daily
26 / 05 / 10 in
Rio Tinto upbeat on iron ore despite global fears
Global miner Rio Tinto on Wednesday predicted strong iron ore demand to continue and gave an upbeat outlook for aluminum, defying sharp slides in commodity prices and fears of a double-dip global recession.
Chief Executive Tom Albanese, addressing the firm's annual meeting in Australia, voiced some caution over near-term prospects and said he would manage capital cautiously, but made no substantial revision to the firm's overall bullish outlook.
"The outlook for global iron ore remains very positive and growth fundamentals remain the same as before the financial crisis, dominated by the rise of China," Albanese said, echoing comments he made in April to a London meeting of UK shareholders.
Since that meeting global investor confidence has been shattered by concerns that Europe's sovereign debt crisis could spark another international banking crisis.
Commodity prices have tumbled, with the CRB index .CRB shedding nearly 11 percent in the past month in part due to a surging U.S. dollar.
Iron ore prices .IO62-CNI=SI have fallen by more than 20 percent in the last month on signs China's appetite may be cooling. Copper prices are down by 12 percent and aluminum by 13 percent.
A prolonged downturn in iron ore and other metal prices could hit Rio, BHP Billiton, Vale and other miners furiously digging for more supplies.
Current annual worldwide demand for 1.3 billion tonnes of iron ore suggests a deficit, according to official Australian government forecasts.
But that deficit could vanish if iron ore output matches some growth forecasts of 50 percent more ore by 2015, while according to UBS uncertainty over the timing and scale of China's fiscal stimulus over the next two to three years creates uncertainty for iron ore's demand outlook.
But Rio Tinto's Albanese put a brave face on the sell-offs in commodities at the Melbourne meeting on Wednesday, keeping faith with his longer-term predictions for booming Asian demand, led by China.
On aluminum, a metal that once threatened to wreck the company's finances after a disastrous acquisition in 2007, Rio Tinto was also upbeat.
"China is still the driver of commodities even if its growth goes to 8 percent and Rio is simply reflecting that sentiment in today's remarks," said Eagle Mining research analyst Keith Goode.
Rio shares rose as much as 4.5 percent, outpacing gains in the wider market, ending up 3.7 percent at A$63.95.
IRON ORE JV PRIZE
Rio Tinto said despite concerns about Australia's hefty new mining tax proposal it remained committed to its planned iron ore joint venture with BHP Billiton in Western Australia's Pilbara region.
Albanese and Chairman Jan du Plessis deflected questions about shareholders complaining that the $5.8 billion BHP has agreed to pay to equalize its stake in the joint venture is too little, focusing instead on the long term benefits of combining the businesses were far more significant.
Du Plessis said the $5.8 billion that had been negotiated was a "good faith attempt...to establish a number which appropriately compensates Rio Tinto for the proportion of the business that will move across to BHP effectively."
"There is too much focus on the detail of this number. In the long run, the industrial benefits to us and to BHP Billiton and indeed the industry of putting these businesses together is what the deal is about," du Plessis told reporters, when asked whether there was scope to renegotiate the equalization payment.
The two companies have estimated that combining their iron ore operations would result in savings of more than $10 billion.
Albanese said in his talks with shareholders, the focus was on the importance of the synergies.
"They like the synergies," he said.
Rio Tinto is concentrating on getting the joint venture approved by regulatory authorities around the world, he said.
17 / 05 / 10 in
BHP Billiton CEO: Iron-Ore Price Has Support At $120-$130/Ton
If a moderation in China's industrial growth were to pressure commodity prices, iron ore would hold at around $120-$130 a ton, BHP Billiton Ltd.'s (BHP.AU) chief executive said Friday.
"That's the marginal cost of supply, and at that level it's very buffered," said Marius Kloppers, CEO of the Australian mining company, one of the world's largest iron-ore producers.
The price of iron ore, the main component of steel, hit a high of $186.50 a ton in April, more than triple the lows from 2009. Iron ore has since slipped due to lower demand from China. On Friday, spot iron ore delivered into China was $166.60 a metric ton, according to The Steel Index.
China's imports are falling on a combination of high prices and government measures aimed at damping what many see to be an overheated economy.
Because demand is outstripping supply in the short term, iron-ore prices will be prone to volatility, Kloppers said. He added that the market shouldn't underestimate the ability of Chinese firms to respond to high prices by boosting domestic output.
"They will kick in and quite quickly push it down again," Kloppers said of the price of iron ore.
Steelmakers around the world have recently announced price increases for their products in order to recoup some of the surge in raw-material costs.
Despite the recent decline in iron-ore prices, China and other emerging markets are seen driving demand in the long term as these countries continue to invest in industrialization and urbanization. China consumed about 68% of the 1 billion tons of iron ore traded overseas in 2009, according to estimates cited by Bernstein Research. This is up from 50% in 2007.
07 / 05 / 10 in
Baoshan Steel GM On Iron Ore Prices
Baoshan Iron and Steel (600019) general manager Ma Guoqiang said on the company's first quarter conference call that an increase in iron ore prices would push up production costs for steel makers in China, and that the current changes to the pricing system will increase the volatility of steel makers' production costs. Ma said that the quarterly contract system for iron ore prices would have an impact on pricing, inventory and logistics management, and cost controls.
Ma said that currently global steel makers are using a temporary fixed price for iron ore imports as 2010 iron ore negotiations are still ongoing. Currently, most of China’s steel makers are importing iron ore at $105-110 per ton, a 100 percent increase in the year-on-year price. The spot price of iron ore is currently $185 per ton. In 2009 Baoshan Iron and Steel spent AU$285.6 million purchasing a 15 percent stake in Aquila Iron Ore in Australia. Even with these increases in costs, Baoshang Iron and Steel expects strong profit growth this year.
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