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…..
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”.
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.
Rio Tinto RT claims, after slashing its final dividend by 21% that at least its balance sheet is robust and that it enters 2017 in good shape. Basic earnings per share moved from 2015’s loss of 47.5 cents per share to a positive 256.9 cents. Consolidated sales revenue for the year fell by $1billion to $33.8billion.
Redrow RDW With a 50% increase in the interim dividend Redrow adds itself to the list of today’s companies proclaiming robust performances. Completions rose by 13% in the six months to 31st December and revenue up 23%, rose to record levels. The gap between the rise in completions and revenue appears to indicate there may have been a a good rise in average selling prices. Profit before tax, surged by 35% as did private orders which leaves the overall order book also standing at record levels.
Smurfitt Kappa Grp SKG is increasing its final dividend by 20% after producing a strong set of results for the year to 31st December. Profit before tax rose by 9% on revenue up by 1% and basic earnings per share by10%. EBITDA broke new records and was the strongest ever.
Dunelm DNLM increased market share in a challenging environment during the half year to 31st December when trading proved to be slightly softer than the company would have liked. Sales fell by 1.6%. profit before tax by 11.3% and EBITDA by 19.5%. But the important bit is that shareholders are kept happy with an 8.3% rise to 6.5p., in the interim dividend.
Grainger plc GRI reports a robust sales performance and even better, a robust pipeline. In fact the figures show that the total sales pipeline for full year 17 were exactly the same as for 2016. Completed sales did rise but only from £47m. to £49m. todays update for the 4 months to 31st January claims a good start to the year with 3.4% like for like rental growth for the year to date and 2.8% like for like rental growth on their PRS rental homes. Demand for rental homes continues to be strong and at the same time the company is on target to achieve its planned reduction in overheads.
Sophos Group SOPH produced a third quarter rise in billings of 16.1%, with strong momentum continuing. The Americas delivered growth of 20%. Cash generation for the quarter was strong with a rise of 28.4% in unlevered free cash flow, making a total increase over the first 9 months of 136.2% and expectations of the figure doubling by the year end.
Alan Green, CEO of Brand Communications is interviewed by Mike Ingram in the TipTV VIP area at the Master Investor show. Pointing to an impressive recovery in mining stocks in last couple of months, Green said rally in heavyweight stocks like Anglo American (AAL), Rio Tinto (RIO), and BHP Billiton (BLT) were also igniting small miners. Regarding Brexit, Green said markets could continue to rise regardless of the vote and added that he does not see a major sell-off even if Britons vote in favor of Brexit.
On Wednesday, after a one day leap of 4%, iron ore rose to a 10 month high of $64.30 per tonne making a rise of 50% since the beginning of the year and nearly 75% since the mid December lows.
Coking coal is not a glamour commodity by any means but on Wednesday that too reached a year’s high of $95 per tonne whilst steel making coal was up by 30% from its December lows.
Rio Tinto RIO said that the rally in commodities was not sustainable but as we reported on Wednesday RIO’s first quarter growth reached double digit figures with copper up by 27% on the previous quarter. At the same time BHP Billiton BHP cut its iron ore production target for the first time in fifteen years.
Even silver, which has for a number of years steadfastly refused to perform its expected role as a tracker of gold , has suddenly shot up to become the best performing commodity of 2016, helped by huge demand from hedge funds and Chinese investors. In only eleven days this month the price of silver jumped by by 14%. Hedge funds bullish positions on silver are now at their highest since 2006. The last time they were so bullish on gold was in 2011 when the price of gold had reached the dizzy heights of $1900 per oz.
The test is not how prices are suddenly emerging from the abyss and soaring onwards and upwards. Speculation can do all sorts of wondrous things but the real test is whether investment in new projects is following suit and it is. Capital expenditure on new mines has nearly doubled in five months, rising by $50 billion to $108 billion of which a huge $65 billion went on gold and copper mines.
Even rare earths have joined in the party. China produces 85% of the world’s rare earths and has now concentrated its previously fragmented rare earths industry into 5 enormous new companies. In the first 3 months of this year shipments of rare earth oxides from China rose by over 100%, with March being the second best month on record.
An almost infallible measure of the health of the world’s mining industry is Caterpillar CAT. Again as we reported last month, Caterpillars sales figures were forecasting a global collapse in mining production and mining activity. In only a few weeks the turn round has been so dramatic that Caterpillar has had to rush out updated figures showing that the rate of decline in machine sales had fallen sharply in all of its markets and that for March they were down by only 13% compared to March last year, whilst the figures for January and February had been down by 21% and 15% respectively. Hedge funds and speculators do not buy mining machinery. Only miners do that.
Rio Tinto RIO The first green shoots of a recovery in mining may have been seen in RIO’s first quarter with iron ore shipments up by 11% and global iron ore production up by 13% on a year ago. Bauxite production also rose by 6% and aluminium by 10%. Mined copper was down 2% on the first quarter of 2015 but up by 27% on quarter 4, whilst at Oyu Tolgoi production rose by 71% on a year ago.
Associated British Foods ABF produced a 115% rise in profit before tax in the 24 weeks to the 27th February, whilst basic earnings per share rose by 150%, despite only 3% growth in group revenue. And this time it was not all down to Primark. Progress was seen in all the groups businesses with an improved performance at Sugar, profits well ahead in Ingredients, improved profit margins at Grocery & Agriculture and Primark of course continuing its expansion. Even the challenges of currency movements appear to have been beaten off and the interim dividend is to be increased by 3%.
SAGA plc SAGA Robust growth for the year to the end of January has enabled Saga to increase its full year dividend by 75%. Profit before tax was up by 54% and basic earnings per share by 54.4%
Aveva Group AVV expects group revenue and adjusted profits before tax to be broadly in line for the year to 31st March but the results have been impacted by the weakness of the US$ in March.
Utilitywise UTW Is increasing its interim dividend by 29% after further strong growth saw revenue up by 36% in the half year to the end of January and adjusted pre tax profits by 17%. With new customers growing by 33%, the company claims it holds an unrivalled market position.
Brand CEO Alan Green discusses IMC Exploration (IMCP), Andalas Energy & Power (ADL), plus Anglo American (AAL) and Rio Tinto (RIO) with Justin Waite on the VOX Markets podcast. The interview is 19 minutes 40 seconds in. Click here to listen.
This year copper has fallen a further 17%. Last week it traded at $2.30 per lb. having fallen 5% in just two weeks. Poor German manufacturing data led to a fall of 3.1% in one day alone
.But things are changing. Chinas manufacturing index has risen off its August lows. This year supply and demand for copper are expected to be back in balance whilst in 2016 there is expected to be a deficit of 130,000 tonnes, growing over the next 12 years to an expected annual shortage of 10m. tonnes.
Gold fell by 6% in five days, back below the magic $1100 per oz, after Janet Yellen said there was a distinct possibility that US interest rates would rise in December. The dollar has already risen 11.3% this year. Obviously Yellen has not a clue about the damage which vague statements and talk of possibilities can do when they are issued by the Fed.
The result is that hedge funds are now ready to sell 430 tonnes of gold and the share of Goldcorp, the worlds largest gold miner have fallen to $11.65, the lowest since 2004.
Steel prices in China dropped to near record lows, down 7.6% in a month. China forges 46% of the worlds steel and consumes more than 75% of the worlds sea borne iron ore trade. Except for a tiny, tiny fall so far this year, which is expected to have righted itself by the end of the year, Chinese iron ore consumption has risen six fold since 2000. It has not fallen once in any year since 2000.
So why the panic ?
The three big Australian ore miners are doing enormous damage – but only to themselves, although they are too thick to realise it. They raised output and cut prices in the middle of a so called slump and and also cut costs, hoping they would bankrupt the competition but the cost cutting was not enough to make up for the price cuts and to make matters worse the competition joined them with increased output and lower prices.
Why the panic ? Ask Vale, Rio Tinto, BHP Billiton and Janet Yellen – they seem to be experts at creating it.