Following is a report about Iron ore and steel, very nice to see JBM being mentioned at the end of it...
The world’s greatest resources story
Barry Sergeant 28 Sep 2007 01:29
From iron ore to steel, from molybdenum to coking coal and nickel, this story is set to run up for years.
For a year and more, piles of smart money have been piling into proxies for iron ore, one of the world's most exclusive mining clubs. The stock price for the world's leading iron ore digger, Brazil's CVRD (NYSE: RIO, $33 a share), has more than tripled in the past 12 months; stock prices for the second and third dominant members of the club, Rio Tinto (RTP.L, £41.46), and BHP Billiton (BHP.L, £17.09), have also soared.
The price of iron ore, in its variants such as fines and pellets, has been soaring on huge increases in demand from Asia, led by China. But the iron ore story is far from isolated, given that demand for final products, mainly steel and stainless steel, fuel similar demands for other steel ingredients such as coking coal, molybdenum, and for stainless steel, chrome and nickel. Seen at the steel end of the story, the price of Arcelor Mittal (MT, $78.55), the world's biggest steelmaker, has more than doubled in the past 12 months, and is currently trading up around record highs.
The analyst community anticipates that global iron ore production is set to increase from nearly 500m tons in 2000 to close on 1000m tons in 2010. By that stage, it is expected that CVRD will be producing some 32% of the world total, followed by Rio Tinto (25%) and BHP Billiton (15%). All other producers combined are expected to supply 28% by 2010, and include Kumba Iron Ore (JSE: KIO, R236), and by 2010, no doubt also emergent producers such as Fortesque (FMG.AX, A$49.65), currently also trading at record highs.
Norilsk (NILSY.PK, $274.05) is particularly well geared to benefit, given its status as the world's biggest nickel producer. On this score, CVRD scores a double whammy, given its recent takeover of Inco, previously one of the world's biggest listed nickel stocks. BHP Billiton and Rio Tinto benefit also by offering iron ore customers packages of raw materials: iron ore along with coking coal, chrome, nickel, molybdenum, and so on.
The global iron ore seaborne trade, dominated by the top three producers, is characterized by the overwhelming presence of a contracts-only market. The annual round of contract negotiations is always anticipated with great excitement; today, Chinese and South Korean buyers have displaced the previously leading Japanese buyers. Benchmark prices come in the way of CVRD BF (blast furnace) pellets and DR (direct reduction) pellets, and Hamersley lump and fines (negotiated by Rio Tinto).
Now that the smart money has found a firm footing in iron ore proxies, prices for relatives of the story are starting to move as well. Prices, for instance, for specialized nickel stocks, such as Rio Narcea (RNG.T, C$5.50) and Jubilee (JBM.AX, A$17.85) have started to track strongly upwards in recent weeks. While the analyst community anticipates that iron ore may move into surplus-supply during 2010, profits for the diggers are set to continue rising for the next two years, at least. Previously, however, the big players in this club have shown a remarkable restraint when implementing supply increases.
JBM Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
