Interesting titbit today from macro business locked thread regarding Fortescue
“Mills are being notified to restart their operation. They are now looking out to buy cargo, but some are still hesitant due to weakening steel sales,” said an iron ore trader in Singapore. ANZ Bank said traders “remain cautious with steel mills reluctant to do any more than match their forward order books”. Demand for fines, granular iron ore that must be treated before being fed into blast furnaces, had dropped as mills had to temporarily shut the pollutive sintering facilities for the APEC meeting, traders said. But that caused demand for iron ore lump, which can be fed directly into a blast furnace, to rise. …”There’s crazy-hot demand due to sinter capacity being limited. However with sintering capacity restarting, you will start to see lump premiums coming off,” he said. ANZ’s The Pervanator is making headlines elsewhere as usual: Analysts at ANZ Bank are confident that the sinking iron ore price will find a floor around $US70 a tonne as Chinese mines are forced to close under financial distress. “Substantial domestic iron ore mine closures would occur between $US70 to $US75 a tonne, creating a floor,” the bank said in a report, according to Bloomberg. It’s one of those peculiarities of media that being perpetually wrong often only drives your reputation higher. This is the fourth price floor The Pervanator has set this year. I have little hope that this one will prove any less porous. Not least because Fortescue Metals has become a Chinese trojan horse. That’s the implication of an AFR tidbit, following tumbling iron ore prices: …one company that may have some extra protection is Fortescue Metals Group. Street Talk understands that some of Fortescue’s major Chinese steel mill customers have signalled they will back the company should things get really rough. The country’s third-largest iron ore producer has received billions in prepayments from its customers in the past, including $US600 million announced last week. It’s understood some of the bigger steel mills have made it clear they are prepared to stick the course. A loss-making dog guaranteed by customers seeking lower iron ore prices. I’m not sure why they wouldn’t let it go under and then buy it. Probably because they know that Canberra would give it to BHP for pennies. In the longer term I don’t think that this strategy will hold anyway. Once Roy Hill, Anglo and Vale complete their ramp ups, FMG can be let go without fear of a price rebound. In the meantime, RIO and BHP are a huge short. Yesterday’s Chinese data is analysed here and offered little reassurance that demand is about to turn, though at least realty showed some signs of life. However, I expect a muted rebound.
(20min delay)