Is China Iron Ore Demand Recovering?
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By Dimitra DeFotis
Bernstein’s latest study of real-time iron ore shipments shows exports are accelerating in the second quarter — but is this a sign that commodities are staging a recovery?
That’s a reversal of first-quarter trends, and one month a trend does not make. But Bernstein’s proprietary data collected on iron ore shipments in recent weeks – including exports from Brazil and imports in China — show a rise of 13% year over year, according to analysts
Paul Gait, Marion Megel de Floris and
Jonathan Absolon. They write that “the iron ore price remains strong, despite a pull-back this week on China Caixin PMI … thanks to both demand- and supply-side factors.”
“As Q1 closed, we can now confidently claim that the quarter was much lower on a quarter-over-quarter (QoQ)basis, down 8.1% from Q4 levels to 271.1Mt. On a year-over-year (YoY) basis however, Q1 exports increased by a strong 10.2%. The drop in Q1 and the consecutive rebound in exports by the end of the quarter are not surprising, since shipments tend to be seasonally weak in the first three months of the year and to accelerate subsequently.
We are also over one month into the second quarter, so we try to assess what the full Q2 picture would look like. If we annualise quarter to date sales assuming constant run rate, shipments look stronger on a QoQ (+4.8%) and YoY (+6.9%) basis. We compare this analysis with quarter-to-date shipments (since April 1 2016) on a YoY basis. It seems that exports have continued to accelerate this week: QTD shipments are now up 13.0% YoY …”
The Bernstein team has an outperform rating on
Anglo American (
NGLOY) (Bernstein thinks Anglo is “positioning its portfolio for an exit in three years’ time via corporate takeover.) It prefers
Rio Tinto (
RIO) to
Vale (
VALE) and has a market perform rating on
BHP Billiton(
BHP). They write:
“The iron ore price remains strong, despite a pull-back this week on China Caixin PMI. The iron ore price pulled back to $60/ton this week but, still remain far higher than the c$39/ton seen towards the end of last year. We continue to think that this robustness has been caused by a combination of factors on both the demand and supply side. We have seen emerging signs of a recovery in China, with property prices increasing, higher PMI, PPI and a renewed credit boom. On the supply side we have seen the majors pull in their supply guidance for this year. Vale is also starting to show supply discipline. After Rio and BHP lowered their iron ore production guidance, Vale also said it expects production to be in the lower end of their previously given guidance …
We are now approaching a potential inflection point for Vale; the recently announced settlement between Samarco, Vale, BHP and the Brazilian government regarding environmental and social damages for the Samarco tragedy has removed some of the uncertainty overhanging from this issue. Henceforth, it is therefore all about repairing the balance sheet and reducing the net debt to Ebitda position of the company. Vale has already executed several asset disposals, and the deleveraging attempts from this point onwards will also focus on asset sales. Furthermore, the company has now indicated that it will consider sales of “core” assets in addition if it needs to in order to achieve its net debt reduction target of $10 billion by the second half of 2017…”
http://blogs.barrons.com/emergingmarketsdaily/2016/05/05/is-china-iron-ore-demand-recovering/
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