Credit Swiss negative outlook for iron ore goes against the grain as Neil from JB Were just put out a very bullish outlook for iron ore....news story on reuters also supports very bullish outlook for iron ore....
By: Reuters 17th July 2009 TEXT SIZE
SHANGHAI/BEIJING - China's monthly iron-ore output leapt by a quarter to the second highest ever in June as demand for steel strengthened and prices rose, while steel production hit an all-time peak, official data showed on Friday.
The 27% jump in iron-ore output, to 83,3-million tons, will reassure local steel mills that are facing uncertainty over imports of iron-ore because of the furore over allegations of spying levelled at Rio Tinto employees involved in China's annual price negotiations.
China was expected to settle iron ore prices with Rio and its Anglo-Australian rival BHP Billiton at the end of last month, but the two sides failed to strike a deal before the talks became subsumed in the spying row involving Rio.
With a revival in the international market, domestic production has rebounded.
"The trend is expected, as imported iron ore prices have been higher than domestically produced, encouraging local miners to resume production," said analyst Hu Kai at industry consultancy Umetal Research Institute. "Production will keep rising in July, as more mines are reopening."
A slump in prices early this year forced China's relatively high-cost iron ore mines to cede domestic market share to importers, who have shipped unprecedented amounts to China for the last three months.
Some analysts had estimated China closed nearly 20% of its ore mines this year.
But spot iron ore prices delivered in China have steadily risen to above $80/t and some Indian ores are offered at around $90/t, making them more expensive than Chinese spot material for the first time nearly in a year.
China, the world's largest iron ore buyer, consumes more than half of the world's traded ore. Its buying spread helped iron ore prices rebound strongly this year, reducing their negotiation leverage with global miners.
The National Bureau of Statistics, which published the figures, revised last June's iron-ore production up, leaving the latest month showing a 1,6% fall in volumes.
China's crude steel output in June rose 6% on year to 49,42-million tons, and coal output jumped 15,9% on year to 279,09-million tons, both record high levels, according to the data from the National Bureau of Statistics.
June's steel production is equivalent to an annual output of more than 600-million tons, 20% higher than the country's 2008 production and way above previous government target of 460-million tons for 2009.
"The production means the utilisation rate of Chinese steel sector has returned to more than 90%, similar to the level in 2007, due to strong order booking," said Hong Kong-based analyst Helen Lau with OSK Securities.
Lau estimated that China's total annual crude steel capacity had reached 650-million tons.
China's June raw coal output rose 12,3% from a month earlier, the official data showed.
"Small coal mines in Shanxi were returning to production, in addition to fast growth in coal production in Inner Mongolia and Shaanxi," said Zhan Lingyan, an analyst at Shenyin & Wanguo Securities.
Inner Mongolia and Shaanxi were China's No.2 and No.3 coal producing region by output in 2008, after Shanxi Province.
But the double-digit growth in coal output is unlikely to sustain, as Shanxi's eligible small mines have nearly all been restarted, Zhan said.
"Coal mines in Inner Mongolia may not have as strong incentive to produce after the regional government introduced a coal price fund in July," she said.
The coal price fund requires coal miners to pay into it on basis of their output.
China's coal market is likely to be in balance, or even gain a small surplus in the summer, analysts said.
Edited by: Reuters
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