IRON AND STEEL Iron ore prices moving higher as China steel production rises After a bit of a dip, iron ore prices are on the rise as Chinese steel production begins to increase again and the world’s top diversified miners will be the likely principal beneficiaries.
Author: Lawrence Williams Posted: Thursday , 15 Aug 2013 LONDON (MINEWEB) -
It should not have escaped anyone who follows the global mining sector’s attention that the world’s three biggest mining companies by a long way, BHP, Rio Tinto and Vale, are also the three biggest miners of high grade iron ore. There had been much discussion of how these would fare in a Chinese downturn, given that China is by far the world’s largest importer of iron ore and there was comment that iron ore prices would fall dramatically, thus decimating the big three’s revenues and profits – exacerbated perhaps by the fact that they are all growing production with the inevitable additional costs that involves.
What the observers seemed to have failed to take into account is that China, in a recession, is still the equivalent of anyone else in a mega growth phase! Growth falling perhaps from 10% plus per annum to maybe 6 or 7% - figures western economies would give their eye teeth for!
Now, Germany’s Commerzbank tells us that the price of iron ore landed at the Chinese port of Tianjin appears to be capable of going in only one direction at the moment – upwards. Yesterday it achieved $142.8 per ton, its highest level in five months and the mega miners will be benefitting accordingly given they control the huge bulk of seaborne iron ore trade. It is also why the next mining company in line, Anglo American, although a significant iron ore miner in its own right through Kumba, has been desperately trying to raise its iron ore production profile through the seemingly badly timed, and financially draining, Minas Rio acquisition in Brazil and why companies are keen to spend huge sums on infrastructure to develop mega iron ore deposits like Simandou in Guinea.
As Commerzbank further points out, since the beginning of the third quarter, the iron ore price has already gained 23% or $26 with China, in its downturn, still producing a great deal of steel. According to figures quoted by the bank from China’s National Bureau of Statistics, steel production in July totalled 65.5 million tonnes, which is 6.2% up year-on-year. In the first seven months of the year, 455.8 million tonnes of steel were produced, 7.1% more than last year.
Also according to Commerzbank in its latest daily report on commodities, China also still appears to be taking in large quantities of iron ore. The Baltic Dry Index, which measures freight rates for bulk cargo transport recorded its highest daily increase since October yesterday, climbing by 5.3% to 1,060 points. According to shipping brokers, this is due above all to increased activity on the routes from Australia and Brazil to China. Australia and Brazil are the world’s two largest exporters of iron ore being the main iron ore mining bases for Rio Tinto and BHP, in the former and Vale in the latter. These thus account for the lion’s share of supply in seaborne iron ore trade, the volume of which last year totalled 1.11 billion tonnes with China taking about two thirds of this.
With the three top diversified miners all taking steps to cut back costs, defer capital spending and otherwise make themselves more efficient, the better iron ore prices than perhaps expected will be serving them well and will show positive benefits in their next quarterly results figures assuming prices don’t fall again in the meantime. But with China seeing better manufacturing output figures anyway this is likely giving a boost to some of the miners’ other products too – notably coal. If prices for bulk exports of iron ore are improving it is likely that coal will be strengthening too as the main consumers are principally the same for both. Copper is also very significant, particularly for BHP and Rio Tinto and better prices here will be helping revenues and profits too.
Thus the world’s biggest miners may well be heading for better results than many analysts have been predicting.They are also not dependent, except at the margins, on precious metals, which have been particularly weak this year as they only really produce these as a relatively minor byproduct to their base metals production. Maybe they will still fall short of their peak profits, but with iron ore holding up well, and production increasing as expansions kick in, the big diversified miners are likely to see their top positions on the global mining scene improve even further in the months ahead.
Topics: MINING, INVESTMENTS, IRON ORE PRICES, BHP BILLITON, RIO TINTO, VALE, CHINA STEEL PRODUCTION, COMMERZBANK, ANGLO AMERICAN, KUMBA IRON ORE, MINAS RIO PROJECT, AUSTRALIA, BRAZIL
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