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Mining.com – Iron ore price extends rally as market focus shifts to output reports

Iron ore prices in Asia pushed higher on Monday as strong global steel demand buoyed sentiment, and as Chinese steel mills continued to ramp up output despite the government’s scrutiny of their compliance with stricter anti-pollution rules.

“Booming steel production continues to support the iron ore market,” analysts at ANZ told Reuters.

The metal price hit a 10-year high last week, with Benchmark 62% Fe fines imported into Northern China (CFR Qingdao) changing hands for $178.43 a tonne on Friday.

The most-traded September iron ore on China’s Dalian Commodity Exchange ended the daytime trading session on Monday 0.8% higher at 1,060 yuan ($162.70) a tonne, rising for a third consecutive session.

“Increased scrutiny on emissions is forcing steel mills to use higher-grade iron ore, which is well compensated by strong steel margins,” ANZ analysts said.

Global steel demand will rise by 5.8% this year as economies recover from the COVID-19 pandemic, the World Steel Association said last week, though it painted a cautious outlook for 2022 as the impact of stimulus spending diminishes.

On the supply side Vale, Rio Tinto and BHP are due to report production data this week as well as give market outlooks.

Link here to view the full article

Mining Global Magazine – Brazil’s Vale to avoid driving down global iron ore market

CFO states that miner will place caution before capacity as it looks to press forward with its recovery from deadly 2019 dam catastrophe.

Brazilian miner Vale SA will place caution before capacity as it seeks to avoid driving down the iron ore market and presses forward with its recovery from a deadly dam break in 2019.

Speaking at an interview during the Reuters Commodity Trading Summit, Luciano Siani, chief financial officer for Vale, says that the miner is prepared to raise its capacity using safer and less polluting methods to 450 million tonnes in about five years – almost 50 percent more than forecast production for 2020.

“We are going to be responsible and we are not going to overflow the markets with iron ore,” he adds, asserting that the miner would not use full capacity if an expected surge in manufacturing-driven Asian demand does not materialise.

“The intent is not to oversupply the markets towards 450 (million tonnes). It is to have the capacity available to meet the market if the need be,” Siani explains.

As the only global iron ore miner with sizeable plans to expand capacity, Vale’s production decisions affect prices of steel products around the world. Its path to growth includes new mines in the north of Brazil, as well as reviving production at some of its older mines in the country’s traditional mining heartland of Minas Gerais.

In the third quarter of this year, the miner briefly recovered its status as top global producer after raising output slightly above its Australian competitor, Rio Tinto, the Reuters report points out….

Link here for the full Mining Global news article

China demand pushes iron ore back above $90 a tonne – Financial Times

Iron ore, the steelmaking commodity that is the main source of income for global miners BHP, Rio Tinto and Vale, broke above $90 a tonne this week for the first time since mid-March, supported by strong demand from China.

The country is the world’s biggest producer of steel and demand for the metal, widely used in construction, has been steadily increasing since Beijing began in late March to ease nationwide lockdowns put in place to contain the spread of coronavirus.

Government data released on Friday showed industrial output in China recovering in April after collapsing during the most intense phase of the outbreak.

Daily crude steel production at big plants in China increased 13 per cent to 2.1m tonnes in the first 10 days of May — the highest level of activity this year, according to brokerage Argonaut Securities.

“The rising steel production didn’t result in an oversupply and price depression as signalled by markets. Rather, steel inventory has quickly declined and steel prices gradually increased,” said Helen Lau, an analyst at Argonaut.

For the week to May 15, total steel inventory in China dropped 34 per cent to 17m tonnes, led by a 37 per cent decline in stocks of steel reinforcement bars, a product widely used in the construction industry.

At the same time as demand in China has been rising, exports from Brazil, a key producer, have stalled because of lower shipments from Vale’s operations in the Amazon rainforest. The cause of the decline is unclear, but analysts said it could be linked to a rising number of Covid-19 cases in the state of Para.

“With China’s crude steel output now at a higher level than a year ago, demand for iron ore is outpacing shipment arrivals. As a result, China’s iron ore port inventories are gradually eroding,” analysts at Morgan Stanley said in a report.

Mike Henry, the chief executive of BHP, told investors this week that if China were to avoid a second wave of Covid-19 infections he expected raw steel production in the country to rise this year, offsetting double-digit declines in the rest of the world. The country accounts for more than 50 per cent of global steel production.

Benchmark ore with an iron ore content of 62 per cent was priced at $93.25 a tonne on Friday, according to an assessment by S&P Global Platts, up 5.4 per cent on the week.

At that price, BHP, Rio and Vale are generating billions of dollars of cash from their iron ore mines.

Analysts said reports China might impose import restrictions on Australian iron ore in retaliation for Canberra’s call for an inquiry into the origins of Covid-19, were probably off the mark.

Beijing has suspended imports of red meat from four Australian abattoirs and is planning to impose punitive tariffs on barley shipments.

“China relies on Australia for over 60 per cent of iron ore imports,” said Glyn Lawcock, analyst at UBS. “With the market tight, Chinese port stocks declining, and Brazilian exports down 12 per cent year to date, options today appear limited.”

FT – Iron ore outlook rests on Vale’s tricky rebound

Iron ore outlook rests on Vale’s tricky rebound

by Neil Hume, Natural Resources Editor. Jan 16th 2020

Shareholders are revelling in bumper payouts, but prices could fade down the track.

Shareholders in Rio Tinto are likely to be celebrating another bumper payout when the miner reports annual results next month. The Anglo-Australian group — along with rivals BHP and Brazil’s Vale — is generating bucket loads of cash from the continued strength of iron ore.

Boosted by strong demand from China and a string of supply disruptions the key steelmaking ingredient rose 30 per cent last year and averaged $90 a tonne.

For big producers such as Rio that can mine the material for as little as $15 a tonne, that means windfall profits — and sturdy dividends for investors. Deutsche Bank reckons Rio generated close to $10bn of free cash flow last year.

Whether it can match that performance in 2020 will depend on the direction of iron ore prices.

The good news for its shareholders is that prices have remained elevated over the past month, trading at more than $90 a tonne as Chinese steelmakers have restocked ahead of the Lunar New Year holiday that starts on January 25, and the start of the spring construction season.

The risk of weather disruptions in the Pilbara — Australia’s main iron ore-producing region — has also kept prices firm, according to traders. A sharp fall in exports from Brazil because of lower shipments from Vale, the world’s biggest iron ore company, has helped too.

One final boost: the decision of the US Treasury to drop the designation of China as a currency manipulator. This has lifted the renminbi, making cargoes of iron ore cheaper for Chinese mills to buy in the seaborne market.

Still, most analysts expect prices to drift lower over the course of the year, as supply picks up and production in China remains broadly flat at close to 1bn tonnes.

Demand is likely to fade after China’s new year holiday, according to BMO Capital Markets. It reckons restocking has finished, pointing to a slowdown in activity at the main iron ore port in Hebei, China’s leading steelmaking province.

Ultimately, the direction of prices will hinge on Vale and whether it can hit targets for production.

The company was forced to cut more than 70m tonnes of capacity last year after a dam disaster at one of its mines in the state of Minas Gerais in which more than 250 people died.

Some of the supply has come back online and this year Vale expects to produce between 340m and 355m tonnes of iron ore, up about 40m from last year. However, no one is sure if the Brazilian miner can actually do that. Some of the shuttered output uses dams that have to be decommissioned before production can resume, for example.

If Vale hits guidance JPMorgan estimates the iron ore market could be in surplus, with supply outstripping demand by 28m tonnes. If it does not, then Rio, its shareholders and other big producers could be celebrating another year of elevated prices.

Link here for full FT article

The squeeze is also seeing some recommissioning activities among previously mothballed iron ore mines.

In NE Brazil, a jv between AIM listed Cadence Minerals #KDNC and Singapore based commodities group IndoSino Pte Ltd will see the former Anglo American (AAL) and Cliffs Natural Resources owned Amapá iron ore project recommissioned.

With key rail concessions granted to Cadence for shipping in December, this large-scale iron open pit ore mine with associated rail, port and beneficiation facilities is expected to produce 5.3 million tonnes of iron ore by 2024.

Iron ore price firm after BHP confirms lower exports – Financial Times

Price surge of steelmaking ingredient has created a huge cash windfall for big producers

The price of iron ore remained above $120 a tonne on Wednesday after BHP Group, one of the world’s biggest suppliers of the steelmaking ingredient, revealed annual exports had declined for the first time this century.

In a trading update, the Anglo-Australian miner said it had shipped 270.5m tonnes of iron ore in the 12-months to June, down from 273.2m tonnes in 2018 — the first year-on-year decline in sales since at least 2000. Supply disruptions in Australia and Brazil and record steel production in China has seen the price of iron ore climb by almost 67 per cent this year to more than $120 a tonne, a level it last traded at in 2019.

The price surge has created a huge cash windfall for big producers like BHP and Rio, which at current prices are making more than $100 on every tonne of the commodity they ship to China, the world’s biggest consumers.

Both companies are tipped to announce big dividends when the announce results next month. At the start of its 2018/19 fiscal year, BHP expected to ship between 287m and 283m tonnes of iron ore but was forced to lower guidance after its mines in Western Australian were hit by a tropical cyclone and a major train derailment.

Rival Australian producer Rio has also suffered disruptions and has lowered its production forecasts twice since January. It expects to ship between 320m-330m tonnes of iron ore in 2019, down from 338.2m in 2018. Brazil’s Vale is also shipping less ore following a deadly dam disaster in January.

With BHP and Vale planning major maintenance programmes in September and October respectively, analysts reckon the iron ore market will remain tight. “BHP are expecting a modest production increase of 1 per cent to 6 per cent in 2020 [273m to 286m)”, said Paul Gait, an analyst at Bernstein Research.

“A planned maintenance programme . . . aimed at improving productivity has temporarily put a pause on any potential volume growth in the system.” In a report issued this week, analysts at Deutsche Bank said iron ore prices would not “break” sustainably below the $100 a tonne level until the first half of next year and then remain around $80 until 2021.

“One of the key takeaways from our [recent] China trip regarded clear evidence of a positive trajectory for infrastructure investment activity in the second half of the year, and only a modest deceleration in new [housing] starts during the same timeframe,” wrote analyst Nick Snowdon. “This points to a relatively healthy demand setting for iron ore in the second half of the year.”

In its trading update, BHP said it was likely to record $600m of exceptional items or charges to cover the costs of decommissioning a tailings dam in Brazil and redundancy costs. The company also flagged a $1bn hit from the impact of declining copper grades and the train derailment.

Mining Journal – Iron ore price to incentivise swing production, says BMO

Current iron ore prices of US$100/tonne should be enough to spark activation of about 60 million tonnes of swing production to “balance the market”, according to BMO, with perhaps 40Mt of that coming from China.

BMO director, equity research, metals & mining – international, Edward Sterck, said a restart of Vale’s stalled 30Mtpa Brucutu mine in Brazil could restore 15Mt of production in the second half of this year. But there was no sign of a restart yet.

Global iron ore production has been impacted in the first half of 2019 by Vale’s dam failure at Brumadinho in Brazil, and the continuing legal issues around Brucutu, as well as weather and fire disruptions affecting Rio Tinto and BHP in Western Australia. BMO says shipping data suggests Rio Tinto and BHP are back on track, but Vale continues to struggle.

A need for 60Mt of swing production – US$6 billion of iron ore sales – could open up opportunities for Australian and other producers, though Sterck suggested to Mining Journal that higher production and earnings were “already baked in” to valuations.

“The iron ore price remains above our forecasts, suggesting upside potential to estimates,” he said.

“The high price should outweigh the supply disruption/shortfall [in the first half].”

The Age: Even if it all turns sour, 2019 is already a vintage year for iron ore

The Age 30th May 2019

On Tuesday the market watched in awe as the iron ore price was elevated to eye watering levels of $US108. By Wednesday, fresh speculation over marginal additions to supply caused the Chinese iron ore futures to wobble – the price dropped 2.3 per cent.

When a commodity has soared to a five-year high in a matter of months, wild swings are not surprising.

But make no mistake 2019 will go down in history as a vintage year for iron ore.

The rally that analysts find hard to predict.
The rally that analysts find hard to predict.

Even if the price dropped significantly in the second half of this calendar year to the $US80 levels it traded at towards the end of last year, the high prices for the first five months of this year would have already bolstered the profitability of the major Australian producers and the coffers of the federal and West Australian governments.

We haven’t seen iron ore prices at this level since 2014.

If the current spot price was factored into 2020 financial year earnings for our major miners, their profits would spike 60 per cent, according to analysts.

And a year at these prices would add about $4 billion to federal government coffers.

Already this calendar year Rio shares have risen 38 per cent, Fortescue stock has doubled in price, and BHP’s shares are 12 per cent higher.

How much is left in the tank for the iron ore price run and how long it can be sustained at levels above $US100 has left forecasters at a loss; they have had to revisit their assumptions as the price trajectory regularly leapfrogs over their targeted iron ore prices.

Back in February, CBA commodities analyst Vivek Dhar predicted the iron ore price could hit $US100 – a view that at the time was seen by some as outlandish.

Three months on and the product that feeds Chinese steel mills is in even higher demand, Chinese stockpiles are at a dangerously low level, supply in the first three months of the year from Australian producers was curtailed by weather events and most importantly the production issues that have plagued Brazil are not not getting any better.

Since the mine tailings dam burst in Brazil in January, the ripple effect and the actions of regulators and courts have forced suspensions of various operations – including dams and mines.

It has resulted in a roller-coaster ride for the iron ore price.

In May, Brazil’s major producer, Vale, told prosecutors in the state of Minas Gerais that a dam was at risk of rupturing at its Gongo Soco mine, about 60 kilometres from where its Brumadinho dam collapsed in January, killing more than 230 people.

The Brumadinho dam disaster and subsequent mine and dam closures in Brazil had prompted Vale, the world’s biggest iron ore miner, to slash its iron ore sales estimate for this year.

Hopes that Vale could increase its shipments were dashed early in May after a court ordered a halt to its operations at its Brucutu iron ore mining complex, reversing a lower court decision that had allowed the mines’ activities to resume.

Analysts have generally underestimated the lengthy regulatory fallout and the repercussions associated with industrial disasters. This time is no different.

And they certainly misread the strength of China’s steel output this year – which, on an annualised basis, topped 1 billion metric tonnes.

Few have been willing to formally predict how long this iron ore boom will continue because it is not a cyclical one.

Analysts have misread the strength of China’s steel output this year.
Analysts have misread the strength of China’s steel output this year.CREDIT:QILAI SHEN

However, the general consensus is that markets should not factor in the resumption of much additional supply from Vale this year.

And this should put a floor under the price.

Some new supply (from marginal producers in India and China) may come on stream later this year – but new entrants will also be waiting to hear about the length of supply disruptions in Brazil.

Currently there are a raft of estimates for 2019 at between $US90 and $US95 and most projections fall back to $US80 levels in 2020.

For investors with iron ore stocks, 2019 is the year they hit the jackpot.

#KDNC – Supply Disruptions Raise Morningstar Near-Term Iron Ore Price Forecasts

A STOCK STRATEGIST INDUSTRY REPORTS by Mathew Hodge

Near-term tightness in the iron ore market has persisted and intensified, with several developments in Brazil further restricting  Vale’s (VALE)supply and Cyclone Veronica off Australia interrupting Pilbara shipments. We’ve factored in a reduction of another 20 million tonnes in Vale’s output in 2019 and 10 million tonnes in 2020. We now expect Vale to produce 350 million tonnes in 2019 and 370 million tonnes in 2020, down from an estimated 390 million tonnes in 2018. For  Rio Tinto (RIO),  BHP (BHP), and Fortescue, we’ve lowered our forecasts by 10 million tonnes in total for 2019 due to the cyclone. The estimated 30 million tonnes of lost supply from Vale and the Pilbara in 2019 is a more than 1% reduction to the seaborne iron ore market.

Disruptions mean that higher-cost iron ore is needed to balance the market, such as from domestic mines in China. The iron ore price has averaged $83 per tonne year to date, well ahead of our prior $65 per tonne forecast for 2019. Accordingly, we are raising our near-term iron ore forecasts to $73 in 2019, $60 in 2020, and $50 per tonne in 2021. Our prior forecasts were $65 in 2019, $55 in 2020, and $40 per tonne in 2021. Our unchanged $40 per tonne long-term forecast now starts a year later, in 2022.

All major iron ore miners we cover benefit from the higher price forecasts, including Vale. However, for Vale, there’s uncertainty around the cost to rectify the Feijao dam failure and compensate the victims as well as legal action that may affect the operation of other mines. Fortescue benefits most because it’s an iron ore pure play and has lower margins than BHP or Rio Tinto, which brings greater leverage to the price.

We’ve not changed our $40 per tonne long-term forecast, given the relative flatness of the iron ore cost curve inside the steep tail of smaller-scale and marginal producers, most which we eventually expect to exit. Disruptions to Vale’s supply should resolve within the next few years. In terms of iron ore supply additions, the lost output from Vale, including Samarco, should come back in the medium term. The S11D project should also expand to reach capacity over the next few years. BHP and Rio Tinto should grow modestly as those companies reach their installed capacities.  Anglo American’s (NGLOY) Minas Rio mine in Brazil should add more than 20 million tonnes per year after being shut to rectify slurry pipeline leaks. Most of the additional output from Anglo will come in 2019. From a disrupted 2019 base of about 350 million tonnes, we expect Vale’s output to grow to around 425 million tonnes a year from 2023…..

Link to Morningstar for full article here

David Paul of Vectorvest on Core Finance TV – Waiting for confirmation of a bottom in the Stock Market, plus #AAL, #RIO, #ELA, #PSON

Dr David Paul of Vectorvest appears with Nick ‘Moose” Batsford on Core Finance TV. Subject: Waiting for confirmation of a bottom in the Stock Market. Stocks covered include Anglo American (AAL), Rio Tinto (RIO), Eland Oil & Gas #ELA and Pearson #PSON. “Never let a good crisis go to waste”.

Corporate news review Friday 1st September 2017

Flybe Group FLYB announces the start of its alliance with Eastern Airways (UK) Ltd. The two have signed a joint revenue and risk sharing agreement, covering four Eastern aircraft, to fly existing Flybe branded routes from Aberdeen, Edinburgh, Glasgow and Manchester. These flights start today, and will significantly enhance connectivity in Scotland.

Ramsdens Holdings RFX updates on trading, and says the strong foreign exchange results, jewellery retail initiatives and strong gold price leads it to expect that interim and full year PBT will be significantly ahead of market expectations.

Rio Tinto RIO completes the sale of its wholly-owned subsidiary Coal & Allied Industries Ltd to Yancoal Australia Ltd for a total consideration of $2.69bn. Under the terms of the sale, Rio may also receive an additional royalty linked to the coal price capped at $410m.

TechFinancials TECH reports a fall in interim group revenues of $6.97m (H1 2016: $9.86m), on gross profit down to $4.87m (H1 2016: $7.36m). Basic EPS decreased to a loss of $0.0109 from a profit of $0.0065 in H1 2016. CEO Asaf Lahav said the board anticipates that the remainder of this financial year “will continuing to be challenging within the binary options market until there is clarity surrounding the on-going regulatory consultations. “

Vertu Motors VTU provides a pre-close trading update and says since the 26 July AGM, it has continued to trade in line with the trends set out in that update and in line with market expectations.

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