Andy, you provide some valid points, but I read (I found article when on my short lived suspension but can't find the link now)
Basically the points raised were.
- Inventories are at a 12 month low, around 85.0/mt.
- 80.00/mt of Chinese production is already out of the market
- Further closutes and reduced production on the cards, especially taking into account Governments pledge relating to environmental issues
- Large infrastructure projects in progress or planned to commence on this year
- At some point even the Big 3 will switch course and start reducing supply or at least not expanding production further
- Even though Rio/BHP/Roy Hill have lower break even point, they cannot afford IO price to tank.
- Their strategy to expand did not assume that price would be $60.0/mt or lower.
- Shareholders sooner or later will revolt, irrespective that say RIO can still make a profit at $40,0/mt.
- Half yearly reports disclosed revenues and profits were being squeezed. They have an advantage of diversification
- FMG & Roy Hill are low cost also compared to others but are not diversified
- BHP/RIO, still have to compete with the elephant in the room, Vale whose costs are quickly reducing and may become much lower, large 400mt vessels, transport & fuel costs and currency advantage USD against Brazil's currency.
- Australia had aviation advantage as it is closer to China, now Vale is catching up fast. If they ramp up production even more BHP/RIO may be looking for new CEOs , (they havea track record of stuffing up e.g. Alcan - &30.0b write-off
My point is that China will not collapse, steel production will grow but at a smaller pace, the issue is oversupply.
Basic economics tells us that supply is matched to demand, at the moment the big end of town are flexing their muscles and at the expense of their shareholders ignoring basic economics.
Why sell more, and deplete reserves only to make less profit???
RIO/BHP are playing right into the hands of the Chinese & also Vale.
Sam Walsh & Amdrew Mackenzie must really have big egos,it's not hard to admit to ones mistakes.
Their golden handshake will cost heaps when they are shown the door.
FMG Price at posting:
$2.51 Sentiment: Hold Disclosure: Held
(20min delay)