rethink about iron ore future

FMG sp has significantly underperformed the asx index. The market has a mixed signal to where iron ore demand will go.

Here's my view on iron mining industry.
1. Iron ore demand will be not as strong as it has been before, as China economic structure transitions from export/manufactures to service industry.
2. Key iron-demanding sectors include real estate, construction and infrastructure. Questions: will they be enough to offset the decline in the demand from manufacturing/export industry?
3. In addition to credit squeeze, real estate bubbles, air pollution control and more crack down on environmental issues, the oversupply of iron ore from Vales, BHP, rio and other companies makes iron ore less scarce.
4. FMG's debt to equity ratio and its profitability is a concern.
5. While Goldman sach has its target on $US80, it is difficult to speculate about the price, but always take time to think about the bigger pictures.


here's an interesting aricle
SHANGHAI: Chinese iron ore futures fell on Wednesday after gaining for two consecutive sessions, as the prospect of increased overseas supplies into the world's top consumer weighed on prices.

Growing supplies of iron ore from global miners including Rio Tinto and BHP Billiton have put pressure on prices, although record-level Chinese steel output suggests a still strong appetite for the raw material.

"High steel production and demand for financing has significantly driven up iron ore imports this year, leading to oversupply and a rapid fall in prices," the China Iron & Steel Association (CISA) said in a market report on Wednesday.

"However, steel output growth will slow down, and the overhang of iron ore stockpiles and squeezing credit for financing will push down iron ore prices."

Iron ore inventories at China's main ports have surged to a record high of 112.63 million tonnes by the end of April, aggravating the level of oversupply, CISA added.

BHP Billiton, the world's No. 3 iron ore miner, said on Wednesday it is on track to lift annual production capacity to 260-270 million tonnes.

Iron ore contracts for delivery in September on the Dalian Commodity Exchange traded one percent lower at 761 yuan ($120) by midday break.

"Steel mills are making some profit currently and keeping high production, which will support iron ore prices, while the continued shaky economic outlook and growing supplies of iron ore means upside room will be very limited," said an iron ore trader in Beijing.

Iron ore for immediate delivery to China was little changed at $106 a tonne on Tuesday, according to data provider Steel Index. This was not far off the seven-week low of $105.4 hit on April 30.

Steel demand is set to improve in the second quarter as construction and manufacturing activities pick up, while cooling economic growth weighs on demand for commodities.

The most active rebar futures on the Shanghai Futures Exchange fell to a more than one-week low of 3,191 yuan ($510) a tonne on Wednesday. It was trading down 0.3 percent at 3,222 yuan by the midday break.