Iron ore price, page-417

Share market generally forward price on SP. If FMG is priced at current IO price fair value would be over $10. That's why SP is price in at lower IO price already.

Valuation on BHP/RIO/VALE are all very similar to that of FMG, the other 3 are value slightly higher because of diversity and higher grade IO.

If BASED on half yearly results (Right now it's better than last half yearly but we'll use that for forward calculation to please the doubters) & SP of $6.11:

IO price at US$50, NPAT is US$1B or P/E of 14 - No one think IO is going this low.
IO price at US$55, NPAT is US$1.5B or P/E of 10 - This is unlikely as well.
IO price at US$60, NPAT is US$2B or P/E of 7.3 - I think this is what MARKET is price FMG at right now.
IO price at US$65, NPAT is US$2.5B or P/E of 5.8 - Anything above this it's a bonus for FMG really.

At IO price of US$75, FMG is cash flow positive at US$16M a day.
At IO price of US$60, FMG is cash flow positive at US$11M a day.

The other positive might be low A$:
At US$80 and 77c FX, = A$103.90
At US$75 and 75c FX, = A$100
US$ difference is $5, but A$ difference is $3.9 and lower cost.
But really higher IO price will out weight any savings in lower A$.

Quarterly number this week will be interesting, we had strong January and February and a weak March, normally the other way around. January was really strong only around 10% difference between 58%P and 62% index, February widened when High grade was popular, March saw the gap narrow again. Anything around 87.5% should please the market. Shipment hopefully stronger than last Q, that was the only downside from last Q. If cash at bank is around US$2B, then we should see the high interest US$478M 2022 Debt gone within a week really.

China produced 800MT of Steel last year and consumed around 1250MT of IO, if Steel production is the same this year and Scrap is replaced by IO by end of June, China would need around 100MT of extra IO per year. And if IO price is at US$60/dmt, only around 1000MT of IO will be in "profit" and the rest of 350MT would be at "lost".

Last year we saw some 100MT Chinese IO stop selling on the market when price was too low and they started to sell again when price was higher again, there are only a handful of Chinese IO mines that got shutdown and restarted again recently, with retreat in IO price, might put favor back to the seaborne IO supply again. Current Chinese IO mines are still in production mainly closer to Steel mills or inland, and some were selling "inventories" from closed mines.

I think fundamentally Steel is too strong for any long term price "drop", demand should be strong in the 2nd half of April and continue in May for constructions, and Belt and Road summit in May should see some "good news" for infrastructures. Not to mention more infrastructure news to come for Xiongan.

But as always,

DYOR.

Frank.