Macquarie predicts rebound in iron ore prices

Friday, 04 Nov 2011

Iron ore prices have plunged in the last two months from USD 180 per tonne to around USD 118 per tonne. Macquarie Commodities Research puts this down to aggressive destocking by Chinese steel mills and sees upside ahead.

Macquarie predicts easy USD 20 to USD 30 rebound in iron ore prices

Macquarie said that current price levels are not reflective of real demand weakness or substantial oversupply.

Instead, the firm has been watching iron ore inventory at 50 smaller steel mills which during previous price slow downs, from January to March and May to July, fell to 28 days of use. In contrast, inventory at mills’ yards and in port and transit has slumped to just 21 days towards the end of October.

According to Macquarie, the pace of destocking is unsustainable and a Chinese swing from destocking to just moderate restocking could add 80 million tonne per annum to global demand.

Macquarie said that “In turn, the firm expects the first USD 20 to USD 30 per tonne of a recovery should be easy. We therefore expect iron ore to be trading above USD 140 per tonne by the end of 2011.”

(sourced Theajmonline.com.au)

Iron Ore-Spot prices tick up on slow Chinese buying

Fri Mar 25, 2011 4:25am GMT

* Chinese mills restock on iron ore at slow pace
* Shanghai rebar futures steady
* BHP details $9.5 bln iron ore, coal expansion plan

By Manolo Serapio Jr

SINGAPORE, March 25 (Reuters) - Spot iron ore prices edged up on Friday as some Chinese mills restocked the steelmaking ingredient, but purchases were far from brisk given lacklustre steel prices.

Steelmakers in China, the world's biggest steel market, had slowed iron ore purchases after aggressive stockpiling early this year lifted prices to record highs in mid-February.

Iron ore prices have lost around 13 percent since hitting those peaks last month.

"Chinese mills have kept production at a high level and they've run down on iron ore inventories quite dramatically to the point where they now have to come back to the market and buy," said Graeme Train, commodity analyst at Macquarie Securities in Shanghai.

"The problem is that mills don't want to commit to a large amount of tonnage when steel prices are not performing very well, so it seems like you've hit a bit of stabilisation and it's a bit tricky for prices to fall because mills have to buy."

The most active October contract on the Shanghai Futures Exchange was steady at 4,716 yuan a tonne by the midday break.

The contract is down 0.8 percent on week, having fallen to four-month lows on Tuesday.

Offers for Indian ore with 63.5 percent iron content improved to $171-$173 a tonne, including freight, on Friday, said Chinese consultancy Mysteel, from $170-$172 for most of this week.

The Steel Index's 62 percent iron ore benchmark .IO62-CNI=SI rose 0.5 percent to $166.40 a tonne on Thursday, while other indexes were steady.

Platts 62 percent index IODBZ00-PLT stood at $168.50, unchanged for a fifth straight session, and Metal Bulletin's 62 percent index .IO62-CNO=MB was nearly flat at $164.92.

STEEL DEMAND NOT COLLAPSING

Iron ore prices are likely to stabilise at current levels unless Chinese steel demand picks up strongly, analysts said, while market players assess the impact on steel demand from a reconstruction in disaster-hit Japan.

Japan's steel mills were largely unscathed after the ferocious March 11 earthquake and tsunami and production disruptions would likely mean a total volume loss of 10 million tonnes for 2011, said Colin Liang, analyst at Bank of America Merrill Lynch.

That represents 9 percent of the 109.6 million tonnes of crude steel Japan made last year. Japan is the world's second-largest steel producer after China.

"Iron ore prices should be going up. Steel demand seems fine, it's not exciting but not collapsing either and production is at a reasonably high level," said Macquarie's Train.

"But because credit is a bit of an issue, people are not forward ordering a lot of material, they're not willing to build up their own inventory and that's taken some of the urgency out of purchasing and as a result you're just not seeing any real movement in prices at the moment," he added.

China has been tightening monetary policy and restricting credit to cool growth.

Further gains in iron ore forward swaps <0#sgxios:> suggested some players remain upbeat, with all 24 contracts through February 2013 edging up, and big gains seen for the nearby second-quarter period.

In industry news, BHP Billiton , the world's No. 3 iron ore producer, said it has approved $9.5 billion of capital investment to expand its Australian iron ore and coal mining operations.

"The big risk that hangs over the iron ore market is when you look at 2013, 2014 and all of the supply that's expected to come online following a lot of these capital expenditures," said Ben Westmore, commodity economist at National Australia Bank.

Spot iron ore prices, which gained more than 40 percent in 2010, are likely to remain high until new supply comes in.

Global seaborne supply of iron ore has been increasing by 20 million to 40 million tonnes in recent years, but production expansion plans by global miners could boost annual supply by around 100 million tonnes from late 2012 to early 2013, analysts have said.(sourced Reuters)

Tags : raw material, steel plants,

Iron ore trading activity kept prices steady

Tuesday, 08 Feb 2011
Reuters reported that thin spot iron ore trading activity on Monday kept prices steady near record highs with top buyer China off the market for the Lunar New Year holiday.
Prices are expected to resume their rally when the Chinese markets reopen on Wednesday on persistent worries about tight supplies through the first half of 2011.

Macquarie Research said in a note that "There is little expansion potential in the global supply chain while rampant Chinese steel production growth is bolstering demand conditions. We would expect the price to keep edging upwards post Chinese New Year with USD 200 per tonne in sight."
Macquarie said the sharp decline in Brazil iron ore exports last month along with continuously tight cargoes from India suggest that the iron ore market will remain in an extremely tight situation in the first half of the year.
Iron ore exports from Brazil the world No 2 supplier of the steelmaking ingredient fell 29% in January from the previous month as heavy rains disrupted shipments.

Supplies from India, the world No 3 exporter had been tight because of a continuing ban on shipments from its Karnataka state. Macquarie said while a possible lifting of the ban this month could bring some material back to the market, the revamped state rules may make paperwork more rigorous and curb shipments compared to last year.
(sourced:Reuters)

China 2010 steel output underreported - Macquarie

Thursday, 03 Feb 2011
According to Macquarie Research, Chinese crude steel output may have been under reported by 13 million tonnes in 2010 by failing to include small steel mills especially in the country's steel heartland of Hebei province.
Macquarie said annual production capacity of 24 million tonnes in the third quarter of last year and 27 million tonnes in the fourth quarter was excluded from full year steel production figures which should have reached 640 million tonnes.
Data from the National Bureau of Statistics showed China produced a record 627 million tonnes of steel last year.

Mr Luo Bingsheng, deputy chairman of the China Iron & Steel Association warned in late October that regional governments and enterprises could be misreporting their output figures.
Macquarie said CISA representing 77 medium and large sized Chinese steel mills said its Hebei based members produced 10.4 million tonnes of crude steel in December but the NBS put the figure at 9.2 million tonnes for the whole province.
Macquarie said "China demand for iron ore is almost 20 million tonnes higher in 2010 than what was implied using the NBS data, adding that this partly contributed to strong iron ore prices over the final quarter of last year.”

Based on its revised figures, Macquarie forecast a modest eight per cent growth in steel production this year, supported by demand from the manufacturing sector, bringing output to 690 million tonnes.(sourced:businessspectator.com.au)

Coking coal prices to skyrocket as stockpiles dry up, Queensland coking coal index has risen to $US365/tonne

By Matt Chambers From: The Australian
January 24, 2011
COKING coal prices are expected to surge through a record $US400/tonne this week as exports from Queensland's drenched Bowen Basin slip because stockpiles at mines and ports are running out and full rail capacity is yet to return.
Prices for Queensland coking coal jumped $US33/tonne to $US383 last week, up 70 per cent on quarterly contract prices of $US225/tonne, according to the latest Platts assessments quoted by Macquarie.
"There is not enough slack in the metallurgical (coking) coal supply chain to cover the losses being incurred," Macquarie analyst Max Layton said.
"With this, the seaborne met coal market is being undersupplied week after week, with risks of amplified deficits from rampant Chinese steel output and strengthening La Nina conditions still present."
Energy Publishing's Queensland coking coal index has risen to $US365/tonne, from $US332 a week earlier.
"Industry consensus is the asking price of coking coal will effortlessly soar past $US400/tonne by this time next week," Energy Publishing said in its Coking Coal Index report, issued on Friday.
Although rain and flooding have eased, and deliveries from mines to ports are resuming, rail capacity is still reduced.
Exports have been supported by mines and ports eating into diminishing coal stockpiles, which had been stored in preparation for the wet season.
According to Macquarie, there has been a massive drawdown of almost all the available stockpiles in the Queensland coal chain.
"This cannot continue forever, and with the current rates of railing to the ports below volumes being exported, we would expect that export volumes for weeks three and four in January would actually be the lowest seen thus far," Mr Layton said.
"We expect to see the spot price for met coal continue to trend upwards in coming weeks."
Coking coal prices are tracked by a number of indexes, so there is some dispute about the record spot price, which was reached in the wake of 2008 Queensland rains.
According to Wood Mackenzie, prices peaked at between $US350 and $US375/tonne, and Goldman Sachs lists the high at $US400/tonne.
Macquarie estimates about 3.3 million tonnes of coking coal and 1 million tonnes of thermal coal have been lost from Queensland ports because of flooding, representing about $900 million of exports, based on contract coking coal prices and thermal coal prices of about $US120/tonne.
Macquarie estimates losses will be between 10 million and 11 million tonnes of coking coal production and between 5 million and 6 million tonnes of thermal coal, and this could mean about $US3.2 billion of exports lost or postponed this quarter.
On Thursday QR National opened the Blackwater coal railway, which goes to the Gladstone port, but it is only operating at part capacity.
All of QR's lines are operating, but miners that export out of Brisbane cannot get their coal to port.

Japanese steam coal contract may reach USD 145 per tonne in 2011- Macquarie

Thursday, 20 Jan 2011

According to an analyst report released, major Japanese utilities may be forced to pay nearly 50% more than a year ago for their largest annual thermal coal contracts as floods in Queensland push prices higher.
Macquarie Research in the report said that the price for the key Japanese fiscal year thermal coal contract could settle at USD 145 per tonne, up from USD 98 per tonne for the same contract last year.

A USD 145 per tonne price would be well over the record seen in 2008, when prices spiked due to flooding in Queensland and the annual contract settled at USD 125 per tonne.
Mr Hayden Atkins an analyst with Macquarie Research said that "The supply disruptions are severe ... by the end of February, we think spot pricing will be quite a bit higher and that's when contracts will be negotiated.”
Contracts generally settle around spot price levels, often with some premium built in for supply security.
The Japanese thermal coal contract, which runs from April 1 through March 31 of the following year, is a benchmark for other coal deals and is typically negotiated between Xstrata and large Japanese utilities including Tokyo Electric Power Co, Tohoku Electric Power Co Inc and Chubu Electric.
Supply issues are not limited to Australia, with other major coal producers also hit by weather that has disrupted production. Mr Atkins said that "There are problems in Colombia, Richards Bay (in South Africa) is running low on stocks and it's still rainy season in Indonesia.”

Many coal analysts are still in the process of updating their forecasts for the Japanese fiscal year contract, with informal estimates varying widely from USD 120 per tonne to USD 140 per tonne.
Japan is Australia's largest thermal coal buyer as well as the country with the largest demand for seaborne thermal coal globally.

Sourced from Reuters