Monday, 12 Mar 2012
Bloomberg citing Mr Eduardo Alexandre National Mines Director as saying that Vale SA and Rio Tinto Plc are among the recipients of 20 coal prospecting licences issued by Mozambique for the Maniamba basin in northwestern Niassa province.
Mr Alexandre said the Maniamba basin covers 4,000 square kilometers and studies carried out so far have covered 870 square kilometres. He said that the government is working on a coal transportation system connecting the province.
Source - Bloomberg
Showing posts with label Vale SA. Show all posts
Showing posts with label Vale SA. Show all posts
Monday, March 12, 2012
Thursday, February 16, 2012
Talks on mega-carrier access open in Brazil
Thursday, 16 February 2012
China and Brazil are negotiating access to Chinese ports for the fleet of giant vessels owned by the miner Vale SA. The talks come as a result of China's tightened regulations on large carriers and signal that the issue has intensified at the political level. During a meeting in the Brazilian capital, Brasilia, the country's Vice-President Michel Temer discussed the issue of access for Vale's Valemax vessels - the world's biggest dry-bulk carriers - with China's Vice-Premier Wang Qishan, according to Marco Aurelio Garcia, foreign policy adviser to Brazilian President Dilma Rousseff.
"It will be dealt with at a political level," Garcia was quoted as saying, according to a report by Bloomberg.
On Jan 31, the Chinese Ministry of Transport tightened port regulations, a move that has effectively prevented Vale's mega-vessels from docking at ports in the country.The ministry said its decision to bar giant ships was taken because of "maritime safety issues". Vale's Valemax vessels are designed to carry 400,000 metric tons of iron ore and are "too large for Chinese ports to accommodate", said Sun Guangqin, director of the Port and Shipping Institute at Dalian Maritime University.
"To tighten the regulations on giant vessels is necessary for the safe operation of ports and shipping routes," Sun said in a recent interview. Analysts said the trade in iron ore between the two emerging economies is also a factor. In 2009, China replaced the United States as Brazil's largest trading partner. The total trade volume between the two countries jumped 16 percent to $77.1 billion last year. Iron ore, one of the South American country's main export commodities, plays an important role in Sino-Brazilian trade.
China, the largest consumer of iron ore, imported 686 million tons of the material in 2011, an increase of 10.9 percent from the previous year, according to data from Chinese General Administration of Customs.
Miners such as Vale might attain monopolies on the transportation of iron ore by setting up their own fleets, Zhang Shouguo, executive vice-president of the China Shipowners' Association, said.
"It (the monopoly) will hurt China's shipping industry as well as the steel industry," said Zhang.
Vale has invested $2.3 billion in 19 of the 400,000-ton giant bulk carriers and will control another 16 under long-term contracts, according to the company.Scheduled for delivery by the end of 2013, the vessels will reduce freight costs from Brazil to China by between 20 and 25 percent and will significantly reduce carbon emissions compared with other vessels, Vale said.
The miner currently operates five Valemax vessels, but none has reached a Chinese port since being put into service in May.In the meantime, Vale managed to unload its 388,000-ton Berge Everest at Dalian port on Dec 28, prompting protests from domestic shipping companies and the China Shipowners' Association.
Source: China Daily
China and Brazil are negotiating access to Chinese ports for the fleet of giant vessels owned by the miner Vale SA. The talks come as a result of China's tightened regulations on large carriers and signal that the issue has intensified at the political level. During a meeting in the Brazilian capital, Brasilia, the country's Vice-President Michel Temer discussed the issue of access for Vale's Valemax vessels - the world's biggest dry-bulk carriers - with China's Vice-Premier Wang Qishan, according to Marco Aurelio Garcia, foreign policy adviser to Brazilian President Dilma Rousseff.
"It will be dealt with at a political level," Garcia was quoted as saying, according to a report by Bloomberg.
On Jan 31, the Chinese Ministry of Transport tightened port regulations, a move that has effectively prevented Vale's mega-vessels from docking at ports in the country.The ministry said its decision to bar giant ships was taken because of "maritime safety issues". Vale's Valemax vessels are designed to carry 400,000 metric tons of iron ore and are "too large for Chinese ports to accommodate", said Sun Guangqin, director of the Port and Shipping Institute at Dalian Maritime University.
"To tighten the regulations on giant vessels is necessary for the safe operation of ports and shipping routes," Sun said in a recent interview. Analysts said the trade in iron ore between the two emerging economies is also a factor. In 2009, China replaced the United States as Brazil's largest trading partner. The total trade volume between the two countries jumped 16 percent to $77.1 billion last year. Iron ore, one of the South American country's main export commodities, plays an important role in Sino-Brazilian trade.
China, the largest consumer of iron ore, imported 686 million tons of the material in 2011, an increase of 10.9 percent from the previous year, according to data from Chinese General Administration of Customs.
Miners such as Vale might attain monopolies on the transportation of iron ore by setting up their own fleets, Zhang Shouguo, executive vice-president of the China Shipowners' Association, said.
"It (the monopoly) will hurt China's shipping industry as well as the steel industry," said Zhang.
Vale has invested $2.3 billion in 19 of the 400,000-ton giant bulk carriers and will control another 16 under long-term contracts, according to the company.Scheduled for delivery by the end of 2013, the vessels will reduce freight costs from Brazil to China by between 20 and 25 percent and will significantly reduce carbon emissions compared with other vessels, Vale said.
The miner currently operates five Valemax vessels, but none has reached a Chinese port since being put into service in May.In the meantime, Vale managed to unload its 388,000-ton Berge Everest at Dalian port on Dec 28, prompting protests from domestic shipping companies and the China Shipowners' Association.
Source: China Daily
Wednesday, February 8, 2012
Brazil government would help Vale vessels to operate in China
Wednesday, 08 Feb 2012
Mines and Energy Minister Edison Lobao said that Brazil government is ready to help Vale SA in the negotiations with the Chinese government for its large vessels, which are able to carry about 400,000 metric tonnes of iron ore, to operate in the Asian country.
Mr Lobao told reporters in Brasilia that Vale hasn’t asked for the government’s help in the issue.
(Sourced from Bloomberg)
Mines and Energy Minister Edison Lobao said that Brazil government is ready to help Vale SA in the negotiations with the Chinese government for its large vessels, which are able to carry about 400,000 metric tonnes of iron ore, to operate in the Asian country.
Mr Lobao told reporters in Brasilia that Vale hasn’t asked for the government’s help in the issue.
(Sourced from Bloomberg)
Saturday, January 28, 2012
Vale gets license to mine high grade iron ore pit at Carajas mine
Saturday, 28 Jan 2012
Brazilian miner Vale SA is granted an operation license to mine a high grade iron ore pit at Carajas in north Brazil.
The license, granted by environmental authorities, will allow Vale to mine the N5 Sul pit, which is part of the N5 mine in the Serra Norte mining site at Carajas in Para state. This operation will support quality enhancement in iron ore production in Carajas in coming years.
Mr Tito Martins CFO of Vale said that the company is seeking to bring new iron ore reserves into production as reserves at some of its long standing mines, particularly in southeast Brazil, become depleted, reducing the iron content of the ore produced. Iron ore is the key raw material in steelmaking.
Carajas, where Vale already has extensive mining operations, has some of the world's highest quality iron ore reserves but its location in the Amazon has made environmental licensing a challenge in recent years.
The operation license now granted allows the opening of a new ore body in the N5 mine, which has the highest ferrous content within Vale's portfolio, strengthening Vale's position as a producer of high quality iron ore to global markets.
(Sourced from Dow Jones Newswires)
Brazilian miner Vale SA is granted an operation license to mine a high grade iron ore pit at Carajas in north Brazil.
The license, granted by environmental authorities, will allow Vale to mine the N5 Sul pit, which is part of the N5 mine in the Serra Norte mining site at Carajas in Para state. This operation will support quality enhancement in iron ore production in Carajas in coming years.
Mr Tito Martins CFO of Vale said that the company is seeking to bring new iron ore reserves into production as reserves at some of its long standing mines, particularly in southeast Brazil, become depleted, reducing the iron content of the ore produced. Iron ore is the key raw material in steelmaking.
Carajas, where Vale already has extensive mining operations, has some of the world's highest quality iron ore reserves but its location in the Amazon has made environmental licensing a challenge in recent years.
The operation license now granted allows the opening of a new ore body in the N5 mine, which has the highest ferrous content within Vale's portfolio, strengthening Vale's position as a producer of high quality iron ore to global markets.
(Sourced from Dow Jones Newswires)
Saturday, January 14, 2012
Mr Martins estimates at least 10 ships wait for Vale Production
Saturday, 14 Jan 2012
Bloomberg cited Mr Jose Carlos Martins Vale head of ferrous and strategy as saying that Vale SA estimates at least 10 ships are waiting for its output which is backlogged because of heavy rain in three Brazilian states.
Vale, the world largest producer of iron-ore declared a force majeure on iron-ore shipments because of the rain.
(Sourced from Bloomberg)
Bloomberg cited Mr Jose Carlos Martins Vale head of ferrous and strategy as saying that Vale SA estimates at least 10 ships are waiting for its output which is backlogged because of heavy rain in three Brazilian states.
Vale, the world largest producer of iron-ore declared a force majeure on iron-ore shipments because of the rain.
(Sourced from Bloomberg)
Sunday, December 11, 2011
Vale SA in advanced negotiations to sell 19 vessels - Report
Sunday, 11 Dec 2011
Bloomberg reported that Vale SA, the iron ore producer building a fleet of the world's largest commodities ships, confirmed it's in advanced talks to sell 19 of the vessels after the plan spurred opposition from Chinese ship owners.
Mr Murilo Ferreira CEO of Vale has said that he is willing to sell the ships only if the company can lease them back under long term contracts. The talks were reported earlier by the O Globo newspaper, which cited an interview with Mr Ferreira.
Vale is spending at least USD 8.1 billion on the so called valemax vessels, including buying 19 very large ore carriers and leasing another 16 in long term contracts, as at seeks to lower freight costs from Brazil to China, its biggest market. The China Shipowners Association, whose members control about 80% of the nation’s shipping capacity, advised companies not use the vessels, according to Executive Vice Chairman Zhang Shouguo. None of the six vessels already in operation since April have called at Chinese ports.
(sourced from Bloomberg.net)
Bloomberg reported that Vale SA, the iron ore producer building a fleet of the world's largest commodities ships, confirmed it's in advanced talks to sell 19 of the vessels after the plan spurred opposition from Chinese ship owners.
Mr Murilo Ferreira CEO of Vale has said that he is willing to sell the ships only if the company can lease them back under long term contracts. The talks were reported earlier by the O Globo newspaper, which cited an interview with Mr Ferreira.
Vale is spending at least USD 8.1 billion on the so called valemax vessels, including buying 19 very large ore carriers and leasing another 16 in long term contracts, as at seeks to lower freight costs from Brazil to China, its biggest market. The China Shipowners Association, whose members control about 80% of the nation’s shipping capacity, advised companies not use the vessels, according to Executive Vice Chairman Zhang Shouguo. None of the six vessels already in operation since April have called at Chinese ports.
(sourced from Bloomberg.net)
Friday, December 9, 2011
Iron ore price negotiations - Who will blink first - Vale or China
Friday, 09 Dec 2011
FE reported that Vale SA’s scare as one of its new gigantic iron ore ships cracked two ballast tanks is a mere sideshow to the bigger battle between the world’s largest producer of the ore and China, the biggest buyer. At stake is who gets to hold the whip hand in the 1 billion tonne a year seaborne iron ore market, and neither side is going to want to blink first.
Neither the Brazilian company or the Chinese may have to give in first, as there are reasons to think that a compromise may be the best way to resolve the dispute.
The heart of the problem lies in Vale’s plan to build 35 mega-bulk carriers with a capacity of around 4,00,000 tonne each, or about double the average size of existing Capesize vessels that haul the world’s iron ore.
Vale’s reasoning is simple enough, it will allow them to cut freight costs and better compete with BHP Billiton and Rio Tinto, whose mines in Western Australia are substantially closer to China than those in Brazil, whose ore has to cross two oceans and go around the Cape of Good Hope. Using the massive vessels, six of which are already sailing will reduce freight costs and could cut the USD 14 per tonne freight charge from Brazil to China in half.
If Vale owns the ships, it will get the saving, and USD 7 a tonne on the around 140 million tonne a year Vale sells to China represents a gain of as much as USD 980 million. The entry of the ultra-large ore carriers will also depress freight rates for Capesize vessels, meaning Vale will also benefit from lower charges on the 180 million tonne of output that it sells to customers other than China. And it’s here where the Chinese objections to Vale’s shipping plans come to the fore.
China’s state owned Cosco Group will suffer if Vale’s giant vessels depress freight rates further. COSCO will also lose volumes to the Vale ships, so it’s a double whammy. And Chinese steelmarkers fear that if Vale controls both the mines and the ships it will lessen their ability to bargain for better prices.
The steelmakers also worry they won’t share in the benefit of falling freight rates, with the extra cash accruing to the miners, who have already gained from changing to short-term contracts . So it comes as no surprise that Vale’s ships have so far been blocked from docking at Chinese ports, on the grounds that facilities aren’t yet ready for them and questions as to how they would be guided to the docks.
But it may also be that the Chinese are upping the ante with Vale, effectively saying that they aren’t going to allow the ships in until the Brazilian company makes some concessions.
These could include leasing out or selling the massive ore carriers, or agreeing to some price reductions to steelmakers so the benefits of cheaper freight costs are shared.
Vale maintains it doesn’t want the new vessels in order to make money from the volatile shipping business, rather it wants to improve its own competitiveness against the Australians. That may well be the case, but then Vale should be willing to compromise in order to lock in some profits.
The longer the matter remains unresolved, the more likely it becomes that the winners will be BHP and Rio. China’s imports of iron ore rose 10.9% in the year to October over the same period last year, with Brazil’s share gaining 13.3% while Australia’s rose by 9.2%.
(Sourced from FE)
FE reported that Vale SA’s scare as one of its new gigantic iron ore ships cracked two ballast tanks is a mere sideshow to the bigger battle between the world’s largest producer of the ore and China, the biggest buyer. At stake is who gets to hold the whip hand in the 1 billion tonne a year seaborne iron ore market, and neither side is going to want to blink first.
Neither the Brazilian company or the Chinese may have to give in first, as there are reasons to think that a compromise may be the best way to resolve the dispute.
The heart of the problem lies in Vale’s plan to build 35 mega-bulk carriers with a capacity of around 4,00,000 tonne each, or about double the average size of existing Capesize vessels that haul the world’s iron ore.
Vale’s reasoning is simple enough, it will allow them to cut freight costs and better compete with BHP Billiton and Rio Tinto, whose mines in Western Australia are substantially closer to China than those in Brazil, whose ore has to cross two oceans and go around the Cape of Good Hope. Using the massive vessels, six of which are already sailing will reduce freight costs and could cut the USD 14 per tonne freight charge from Brazil to China in half.
If Vale owns the ships, it will get the saving, and USD 7 a tonne on the around 140 million tonne a year Vale sells to China represents a gain of as much as USD 980 million. The entry of the ultra-large ore carriers will also depress freight rates for Capesize vessels, meaning Vale will also benefit from lower charges on the 180 million tonne of output that it sells to customers other than China. And it’s here where the Chinese objections to Vale’s shipping plans come to the fore.
China’s state owned Cosco Group will suffer if Vale’s giant vessels depress freight rates further. COSCO will also lose volumes to the Vale ships, so it’s a double whammy. And Chinese steelmarkers fear that if Vale controls both the mines and the ships it will lessen their ability to bargain for better prices.
The steelmakers also worry they won’t share in the benefit of falling freight rates, with the extra cash accruing to the miners, who have already gained from changing to short-term contracts . So it comes as no surprise that Vale’s ships have so far been blocked from docking at Chinese ports, on the grounds that facilities aren’t yet ready for them and questions as to how they would be guided to the docks.
But it may also be that the Chinese are upping the ante with Vale, effectively saying that they aren’t going to allow the ships in until the Brazilian company makes some concessions.
These could include leasing out or selling the massive ore carriers, or agreeing to some price reductions to steelmakers so the benefits of cheaper freight costs are shared.
Vale maintains it doesn’t want the new vessels in order to make money from the volatile shipping business, rather it wants to improve its own competitiveness against the Australians. That may well be the case, but then Vale should be willing to compromise in order to lock in some profits.
The longer the matter remains unresolved, the more likely it becomes that the winners will be BHP and Rio. China’s imports of iron ore rose 10.9% in the year to October over the same period last year, with Brazil’s share gaining 13.3% while Australia’s rose by 9.2%.
(Sourced from FE)
Saturday, November 5, 2011
Vale SA looking to sell Colombia coal mine and port - Report
Saturday, 05 Nov 2011
Reuters citing potential buyers reported that Brazilian mining company Vale SA is looking to sell its Colombian coal mine and Rio Cordoba port.
Vale acquired the assets in April 2009 for USD 306 million and is looking to unload them as it views the assets as small and high-cost mines. A sales process began more than a month ago and a banker has been appointed by Vale.
A Vale spokesman said the company does not comment on rumors.
(sourced from Reuters)
Reuters citing potential buyers reported that Brazilian mining company Vale SA is looking to sell its Colombian coal mine and Rio Cordoba port.
Vale acquired the assets in April 2009 for USD 306 million and is looking to unload them as it views the assets as small and high-cost mines. A sales process began more than a month ago and a banker has been appointed by Vale.
A Vale spokesman said the company does not comment on rumors.
(sourced from Reuters)
Thursday, November 3, 2011
Rio Tinto calls for river based solution to transport coal from Moatize
Thursday, 03 Nov 2011
According to Mr Eric Finlayson CEO of Rio Tinto Coal Mozambique, Rio Tinto considers using the Zambezi River to transport coal from Tete to be a better solution than the Nacala railroad.
Mr Finlayson during a visit by the President of Mozambique to Rio Tinto’s facility in the Karratha region, some 1,300 kilometres from the city of Perth, said that the Zambezi was an interesting alternative to the Nacala railroad as the distance between Moatize and the port was 900 kilometres by rail and only 500 kilometres by river.
The two options are a solution to the low transport capacity of the Sena railroad, with a current maximum of 6 million tonnes per year and Brazilian mining company Vale plans to invest in the construction/repair of the railroad between Moatize and the port of Nacala.
Mr Finlayson, cited by the Mozambican press as saying that “Coal resources of billions of tonnes are being developed by Rio Tinto and by Vale, amongst other companies, and the railroad from Moatize to Beira is the only operational facility for transporting the coal and massive investment is needed in infrastructure to achieve significant levels of production.”
During the visit, President Armando Guebuza watched the process of unloading trains, transport of the ore on a conveyor belt to the warehouse, amongst other operations and also visited other facilities.
The chief executive of Rio Tinto, Doug Ritchie, gave the Mozambican government assurances that his company had the technical and financial capacity to carry out the coal project in the central province of Tete successfully.
The Rio Tinto group took ownership of the Mozambican mining assets of Australia’s Riversdale Mining following a takeover bid that ended with the acquisition of the stakes owned by India’s TATA Steel and Brazil’s Company Companhia Siderúrgica Nacional.
(Sourced from macauhub)
According to Mr Eric Finlayson CEO of Rio Tinto Coal Mozambique, Rio Tinto considers using the Zambezi River to transport coal from Tete to be a better solution than the Nacala railroad.
Mr Finlayson during a visit by the President of Mozambique to Rio Tinto’s facility in the Karratha region, some 1,300 kilometres from the city of Perth, said that the Zambezi was an interesting alternative to the Nacala railroad as the distance between Moatize and the port was 900 kilometres by rail and only 500 kilometres by river.
The two options are a solution to the low transport capacity of the Sena railroad, with a current maximum of 6 million tonnes per year and Brazilian mining company Vale plans to invest in the construction/repair of the railroad between Moatize and the port of Nacala.
Mr Finlayson, cited by the Mozambican press as saying that “Coal resources of billions of tonnes are being developed by Rio Tinto and by Vale, amongst other companies, and the railroad from Moatize to Beira is the only operational facility for transporting the coal and massive investment is needed in infrastructure to achieve significant levels of production.”
During the visit, President Armando Guebuza watched the process of unloading trains, transport of the ore on a conveyor belt to the warehouse, amongst other operations and also visited other facilities.
The chief executive of Rio Tinto, Doug Ritchie, gave the Mozambican government assurances that his company had the technical and financial capacity to carry out the coal project in the central province of Tete successfully.
The Rio Tinto group took ownership of the Mozambican mining assets of Australia’s Riversdale Mining following a takeover bid that ended with the acquisition of the stakes owned by India’s TATA Steel and Brazil’s Company Companhia Siderúrgica Nacional.
(Sourced from macauhub)
Monday, October 31, 2011
China Seeks New Iron Ore Price Model, Holds Talks With Miners
Monday,Oct 31,2011 |By Bloomberg News
China, the world’s biggest iron ore buyer, said it’s held talks with Vale SA (VALE3), Rio Tinto Group and BHP Billiton Ltd. (BHP) to set up a new pricing mechanism after a plunge in cash market prices.
“We hope to build a new stable, transparent, fair and reasonable pricing mechanism,” Zhang Changfu, vice chairman and secretary general of the China Iron and Steel Association, told reporters today in Beijing. “We wish to make it more well- organized and healthy.”
Iron ore prices for immediate delivery fell 32 percent this month on China’s credit tightening and slowing steel demand from builders and automakers. Most Chinese customers are seeking to replace quarterly contracts with spot pricing, the largest ore producer, Vale, said last week.
Baoshan Iron & Steel Co., China’s biggest mill, is in talks with Vale on fourth-quarter ore prices, and expects its raw- material costs to drop under a new pricing model, General Manager Ma Guoqiang said today in a webcast meeting with investors. He didn’t provide further details on the new model.
Vale, together with BHP and Rio, in 2010 abandoned a 40- year custom of setting prices annually in favor of quarterly iron ore contracts as spot prices gained. The quarterly contracts are based on a three-month average of spot price indexes for the period ending a month before the onset of the new quarter.
Accelerating Moves
The plunge in iron ore prices is accelerating a move to shorter pricing methods and closer to spot, Rio’s Chief Executive Officer Tom Albanese told analysts last week. Rio, the second-largest iron ore producer, sold about 86 percent of its output on a quarterly basis, he said.
BHP, the world’s largest mining company and third biggest iron ore producer, is selling the “vast majority” of its iron ore on monthly prices, Chief Executive Officer Marius Kloppers said this month. The top three producers control about 62 percent of the total seaborne trade, according to Bloomberg Industries.
Iron ore prices may drop to as low as $95 a metric ton, the lowest in more than two years, in the short term before rebounding next year, Morgan Stanley analysts Peter Richardson and Joel Crane said today in an e-mailed report. They traded at $116.90 a ton on Oct. 28, according to The Steel Index Ltd. and have fallen for 15 days, the longest streak since July 2010,
’Turning Point’
The “turning point” of a global iron ore shortage may come at the end of next year or 2013 as new mining projects come on stream, Baoshan’s Ma said today. The company had previously forecast the market to move into surplus in 2014.
Rising competition and raw material costs squeezed profit margins for China’s medium and large steelmakers to 2.53 percent in September and 2.99 percent in the first nine months, Ma said. Shanghai-based Baoshan’s profit fell 51 percent to 1.24 billion yuan in the third quarter from a year ago, the company said Oct. 28.
Chinese prices of hot-rolled coil, a benchmark product, gained 2.2 percent last week, the first weekly gain since the start of September, narrowing the price decline to 13 percent in the past two months, according to researcher Beijing Antaike Information Development Co.
China’s Hebei province, the biggest steelmaking region, has shuttered more than 20 iron furnaces and 20 rolling plants, partly because of the price plunge, CISA’s Zhang said today.
China, the world’s biggest iron ore buyer, said it’s held talks with Vale SA (VALE3), Rio Tinto Group and BHP Billiton Ltd. (BHP) to set up a new pricing mechanism after a plunge in cash market prices.
“We hope to build a new stable, transparent, fair and reasonable pricing mechanism,” Zhang Changfu, vice chairman and secretary general of the China Iron and Steel Association, told reporters today in Beijing. “We wish to make it more well- organized and healthy.”
Iron ore prices for immediate delivery fell 32 percent this month on China’s credit tightening and slowing steel demand from builders and automakers. Most Chinese customers are seeking to replace quarterly contracts with spot pricing, the largest ore producer, Vale, said last week.
Baoshan Iron & Steel Co., China’s biggest mill, is in talks with Vale on fourth-quarter ore prices, and expects its raw- material costs to drop under a new pricing model, General Manager Ma Guoqiang said today in a webcast meeting with investors. He didn’t provide further details on the new model.
Vale, together with BHP and Rio, in 2010 abandoned a 40- year custom of setting prices annually in favor of quarterly iron ore contracts as spot prices gained. The quarterly contracts are based on a three-month average of spot price indexes for the period ending a month before the onset of the new quarter.
Accelerating Moves
The plunge in iron ore prices is accelerating a move to shorter pricing methods and closer to spot, Rio’s Chief Executive Officer Tom Albanese told analysts last week. Rio, the second-largest iron ore producer, sold about 86 percent of its output on a quarterly basis, he said.
BHP, the world’s largest mining company and third biggest iron ore producer, is selling the “vast majority” of its iron ore on monthly prices, Chief Executive Officer Marius Kloppers said this month. The top three producers control about 62 percent of the total seaborne trade, according to Bloomberg Industries.
Iron ore prices may drop to as low as $95 a metric ton, the lowest in more than two years, in the short term before rebounding next year, Morgan Stanley analysts Peter Richardson and Joel Crane said today in an e-mailed report. They traded at $116.90 a ton on Oct. 28, according to The Steel Index Ltd. and have fallen for 15 days, the longest streak since July 2010,
’Turning Point’
The “turning point” of a global iron ore shortage may come at the end of next year or 2013 as new mining projects come on stream, Baoshan’s Ma said today. The company had previously forecast the market to move into surplus in 2014.
Rising competition and raw material costs squeezed profit margins for China’s medium and large steelmakers to 2.53 percent in September and 2.99 percent in the first nine months, Ma said. Shanghai-based Baoshan’s profit fell 51 percent to 1.24 billion yuan in the third quarter from a year ago, the company said Oct. 28.
Chinese prices of hot-rolled coil, a benchmark product, gained 2.2 percent last week, the first weekly gain since the start of September, narrowing the price decline to 13 percent in the past two months, according to researcher Beijing Antaike Information Development Co.
China’s Hebei province, the biggest steelmaking region, has shuttered more than 20 iron furnaces and 20 rolling plants, partly because of the price plunge, CISA’s Zhang said today.
Analysis: Iron ore slump to boost shorter contracts, risks
Mon Oct 31, 2011
SINGAPORE (Reuters) - A slide in iron ore prices has driven miners to alter costly quarterly contracts to please Chinese clients, but spot pricing, which magnifies the impact of price swings, is still distant.
Iron ore's slump of 34 percent since early September revealed the flaws of a system that prices contracts based on the previous quarter's spot rates with a one-month lag, and opened the door for a more flexible mechanism for top consumer China while it grapples with weakening steel demand.
"The pricing system is being adjusted to help consumers maintain margins in volatile markets," said Fairfax mining analyst John Meyer. "It's about looking after your customers."
Up to 15 percent of iron ore sold by top iron ore miner Vale (VALE5.SA) to China on a quarterly contract was at risk of default given the drop in spot prices, prompting it to shift its pricing method closer to the current spot rate, Macquarie Securities said.
At around $120 a tonne, spot iron ore is more than 30 percent cheaper than the fourth-quarter contract rate of around $175, which was the average of index-linked spot prices in June to August.
While Vale continues to sell ore to its European, Japanese and Korean customers on lagged quarterly contracts, it is selling to China at a provisional price with the final price based on the average spot price in the current quarter, Macquarie said in an October 24 report.
'NOT A FREE RIDE'
"There is an ongoing shift to spot pricing but I think many companies will resist this and although there may be more spot pricing done this year, I would not call the end of quarterly pricing," said Meyer.
Instead, quarterly contracts may be adjusted "toward spot market levels through the application of discounts and provisional pricing," he said.
Pricing the steelmaking raw material based on the daily market rate exposes both consumers and producers to volatility that can affect cashflow and operations.
"If you're moving to spot pricing, then you're opening yourself up for a provisional pricing mechanism which can be very destructive," said James Wilson, analyst at RBS Morgans, who thinks a shift to monthly pricing will be more acceptable to buyers and miners.
With the ore price likely to change between the time the miner ships it and the customer gets it, spot pricing puts millions of dollars at stake as a single shipment of the bulk commodity can be easily around 150,000 tonnes, said Wilson.
Chinese steel mills are understandably opposed to frequent changes in pricing iron ore, the country's biggest imported commodity in terms of volume, with 2010 imports exceeding 618 million tonnes.
"Steel mills prefer that iron ore prices are fixed on a longer-term basis as steel production is a continuous process," said an official in charge of buying iron ore for a mid-sized Chinese steelmaker.
"If iron ore prices fall sharply, miners would usually offer some discounts to help steel mills cope with losses."
Rio Tinto (RIO.AX)(RIO.L), the world's No. 2 iron ore producer, 86 percent of whose third-quarter sales were on quarterly contract, said the market weakness was accelerating the move to pricing methods closer to spot.
The potential shift marks another phase in the evolution of iron ore pricing, which only moved to a quarterly system in 2010 after 40 years of setting rates annually.
That change followed a similar sharp fall in spot prices that forced a number of Chinese customers to renege on annual contracts in late 2008 following the global financial crisis.
But while Vale is willing to be more flexible with clients wanting to migrate toward pricing close to spot rates from quarterly contracts, the firm warned it would be a one-time switch.
"It's not a free ride, it's something that both sides have to think about and look at what is better in the long term," Jose Carlos Martins, Vale executive director for marketing, sales and strategy, said on Thursday.
"We're trying to avoid opportunistic situations."
TRANSITIONAL PHASE
It is clear, however, that the iron ore market will eventually move to spot pricing as growing risks push more players into the nascent derivatives market to hedge cost.
The current price slump lifted the volume of iron ore forward swaps cleared by the Singapore Exchange to a record 1,736 lots, or 868,000 tonnes, on Thursday. Open interest also hit an all-time high of 10,487 lots, or 5.2 million tonnes, the SGX website showed.
SGX clears the bulk of iron ore swaps traded globally.
Besides swaps, there is the less liquid futures market introduced in August by the Singapore Mercantile Exchange, following domestic-traded futures contracts in India.
"We think the quarterly pricing system is a transitional phase on the way to exchange-traded pricing with a liquid futures market," said Gavin Montgomery, iron ore market analyst at Wood Mackenzie.
"The GlobalOre trading platform being pushed by BHP will move the market toward this end," he said, referring to a new pricing platform for iron ore that BHP Billiton (BHP.AX) (BLT.L) planned to launch at the end of this year or early in 2012.
GlobalOre aims to develop a standard contract for physical iron ore to be traded on its online platform by producers, consumers and traders, the firm says on its website.
The spot market represents round 20 percent of the estimated 1 billion tonnes of global seaborne iron ore traded annually, with the rest in long-term contracts.
But Fairfax's Meyer said the current pricing evolution could double the share of spot sales very quickly.
While Vale and Rio have mostly stuck to quarterly contracts, third-ranked BHP Billiton (BHP.AX) (BLT.L) has been selling an "overwhelming majority" of its iron ore using a monthly pricing mechanism, Marcus Randolph, chief executive of BHP's ferrous and coal businesses, said this month.
At the end of the day, it all boils down to ensuring the miners' biggest market for their biggest money maker is satisfied.
"If that means sacrificing a little bit in the way of pricing, then they do so to keep their Chinese buyers nice and happy," said Gavin Wendt, an analyst at MineLife in Sydney.
(sourced Reuters)
SINGAPORE (Reuters) - A slide in iron ore prices has driven miners to alter costly quarterly contracts to please Chinese clients, but spot pricing, which magnifies the impact of price swings, is still distant.
Iron ore's slump of 34 percent since early September revealed the flaws of a system that prices contracts based on the previous quarter's spot rates with a one-month lag, and opened the door for a more flexible mechanism for top consumer China while it grapples with weakening steel demand.
"The pricing system is being adjusted to help consumers maintain margins in volatile markets," said Fairfax mining analyst John Meyer. "It's about looking after your customers."
Up to 15 percent of iron ore sold by top iron ore miner Vale (VALE5.SA) to China on a quarterly contract was at risk of default given the drop in spot prices, prompting it to shift its pricing method closer to the current spot rate, Macquarie Securities said.
At around $120 a tonne, spot iron ore is more than 30 percent cheaper than the fourth-quarter contract rate of around $175, which was the average of index-linked spot prices in June to August.
While Vale continues to sell ore to its European, Japanese and Korean customers on lagged quarterly contracts, it is selling to China at a provisional price with the final price based on the average spot price in the current quarter, Macquarie said in an October 24 report.
'NOT A FREE RIDE'
"There is an ongoing shift to spot pricing but I think many companies will resist this and although there may be more spot pricing done this year, I would not call the end of quarterly pricing," said Meyer.
Instead, quarterly contracts may be adjusted "toward spot market levels through the application of discounts and provisional pricing," he said.
Pricing the steelmaking raw material based on the daily market rate exposes both consumers and producers to volatility that can affect cashflow and operations.
"If you're moving to spot pricing, then you're opening yourself up for a provisional pricing mechanism which can be very destructive," said James Wilson, analyst at RBS Morgans, who thinks a shift to monthly pricing will be more acceptable to buyers and miners.
With the ore price likely to change between the time the miner ships it and the customer gets it, spot pricing puts millions of dollars at stake as a single shipment of the bulk commodity can be easily around 150,000 tonnes, said Wilson.
Chinese steel mills are understandably opposed to frequent changes in pricing iron ore, the country's biggest imported commodity in terms of volume, with 2010 imports exceeding 618 million tonnes.
"Steel mills prefer that iron ore prices are fixed on a longer-term basis as steel production is a continuous process," said an official in charge of buying iron ore for a mid-sized Chinese steelmaker.
"If iron ore prices fall sharply, miners would usually offer some discounts to help steel mills cope with losses."
Rio Tinto (RIO.AX)(RIO.L), the world's No. 2 iron ore producer, 86 percent of whose third-quarter sales were on quarterly contract, said the market weakness was accelerating the move to pricing methods closer to spot.
The potential shift marks another phase in the evolution of iron ore pricing, which only moved to a quarterly system in 2010 after 40 years of setting rates annually.
That change followed a similar sharp fall in spot prices that forced a number of Chinese customers to renege on annual contracts in late 2008 following the global financial crisis.
But while Vale is willing to be more flexible with clients wanting to migrate toward pricing close to spot rates from quarterly contracts, the firm warned it would be a one-time switch.
"It's not a free ride, it's something that both sides have to think about and look at what is better in the long term," Jose Carlos Martins, Vale executive director for marketing, sales and strategy, said on Thursday.
"We're trying to avoid opportunistic situations."
TRANSITIONAL PHASE
It is clear, however, that the iron ore market will eventually move to spot pricing as growing risks push more players into the nascent derivatives market to hedge cost.
The current price slump lifted the volume of iron ore forward swaps cleared by the Singapore Exchange to a record 1,736 lots, or 868,000 tonnes, on Thursday. Open interest also hit an all-time high of 10,487 lots, or 5.2 million tonnes, the SGX website showed.
SGX clears the bulk of iron ore swaps traded globally.
Besides swaps, there is the less liquid futures market introduced in August by the Singapore Mercantile Exchange, following domestic-traded futures contracts in India.
"We think the quarterly pricing system is a transitional phase on the way to exchange-traded pricing with a liquid futures market," said Gavin Montgomery, iron ore market analyst at Wood Mackenzie.
"The GlobalOre trading platform being pushed by BHP will move the market toward this end," he said, referring to a new pricing platform for iron ore that BHP Billiton (BHP.AX) (BLT.L) planned to launch at the end of this year or early in 2012.
GlobalOre aims to develop a standard contract for physical iron ore to be traded on its online platform by producers, consumers and traders, the firm says on its website.
The spot market represents round 20 percent of the estimated 1 billion tonnes of global seaborne iron ore traded annually, with the rest in long-term contracts.
But Fairfax's Meyer said the current pricing evolution could double the share of spot sales very quickly.
While Vale and Rio have mostly stuck to quarterly contracts, third-ranked BHP Billiton (BHP.AX) (BLT.L) has been selling an "overwhelming majority" of its iron ore using a monthly pricing mechanism, Marcus Randolph, chief executive of BHP's ferrous and coal businesses, said this month.
At the end of the day, it all boils down to ensuring the miners' biggest market for their biggest money maker is satisfied.
"If that means sacrificing a little bit in the way of pricing, then they do so to keep their Chinese buyers nice and happy," said Gavin Wendt, an analyst at MineLife in Sydney.
(sourced Reuters)
Iron ore price slump to deepen despite Indian supply cut
Mon, Oct31, 2011
BEIJING/MUMBAI: (Reuters) - With demand from top buyer China still weak, global iron ore prices are not expected to recover in the next few weeks and may not yet be at their nadir despite a slump in deliveries from the world's third largest producer, India.
R.K. Sharma, secretary-general of the Federation of Indian Mineral Industries (FIMI) said on Monday that a precipitous drop in prices since September had made it hard for Indian suppliers to meet their high rail freight and export duty costs, forcing them to cut shipments to a minimum.
Platts' 62-percent iron ore index fell to $116.75 per tonne by the end of Friday, down 19 percent over the week. It has fallen more than $60 per tonne since September, leaving traders to wonder when it will finally hit bottom.
A senior Chinese industry official said on Monday he anticipated further declines in coming weeks.
"In my personal opinion, the price of imported iron ore will fall further, because the trends for the whole sector are unlikely to get better and steel mills don't dare to buy ore," said Zhang Changfu, vice-chairman of the China Iron and Steel Association.
The decline in Indian supplies is unlikely to provide any additional support to prices, especially as Australian and Brazilian suppliers remain more than eager to fill the breach, said Ian Roper, commodities analyst with CLSA in Shanghai.
Roper, who has long been predicting a slump in prices, said the biggest impact on supply was not likely to be felt in India, but at China's own iron mines, where production costs sometimes reach as much as $150 per tonne.
"The relevant part will be the decline in Chinese domestic supply -- you've got 80-100 million tonnes of supply that is uneconomic at $110 a tonne," he said.
The top three global iron ore producers, Australia's Rio Tinto (RIO.AX)(RIO.L) and BHP Billiton (BHP.AX)(BLT.L) as well as Brazil's Vale (VALE5.SA), are all in the middle of a big capacity expansion and they say their plans will not be affected by any fluctuations in global prices.
The big three, operating at much lower costs than their counterparts in India and elsewhere, have said falling prices will help drive competitors out of the market.
"We've finally seen the Australians running their mines at a decent rate in the last few months and that has combined with a slightly slower pace of steel production to send the price down," said Roper.
"The miners will always pursue a volume over price strategy," he said.
INDIAN EXPORTS FALLING
India has already been making efforts to reduce exports, saying it wants to give priority of supply to its own steel sector, but it has struggled to bring new smelting capacity into operation.
FIMI's Sharma said India's biggest iron ore producing state, Karnataka, was now "shut," but no shipments have been made from the southern region since the local government banned exports last year, even though the Supreme Court overturned the ban in April.
Total exports in August fell 43.4 percent from a year ago to 2.65 million tonnes, the latest data from FIMI showed, while shipments to China saw a 24 percent year-on-year decline in the first nine months of 2011.
India charges a higher railway freight on cargoes meant for exports compared with those for local consumption. Earlier this year, the federal government raised the export duty on fines to 20 percent from 5 percent.
CLSA's Roper said it was likely the Indian government would quickly adjust duties and freight rates again in order to give exporters room to operate, especially in the face of a domestic supply glut.
"The Indian government has the ability to respond to keep its mines in the market, but how quickly they do that is debatable," he said.
The prices for lower-grade Indian ores were not now attractive to Chinese buyers, said a senior iron ore trader in eastern China's Shandong province, who sells Indian ore to local steel mills.
"Some suppliers, who have materials available on hand, are not willing to sell their stocks which were bought at high prices," he added.
STOCKPILED HIGH
CISA's Zhang said domestic steel mills were increasingly unwilling to return to the market while their stockpiles of expensive ores were at current levels.
He said stockpiles at eight major ports had now reached as high as 98 million tonnes, with much of that bought at prices of around $165 per tonne.
Zhang's figures were higher than those issued last week by industry consultancy Mysteel, which put port stockpiles at 92.74 million tonnes, still nearly 35 percent higher than the end of October last year.
Roper of CLSA said China's mills were likely to return to the market soon as they replenish inventories for the winter.
"Everyone is destocking like mad now and stepping back from the market while prices are plunging, but this is a short-term cycle and the steel mills will be back within a couple of weeks."
(sourced Reuters)
BEIJING/MUMBAI: (Reuters) - With demand from top buyer China still weak, global iron ore prices are not expected to recover in the next few weeks and may not yet be at their nadir despite a slump in deliveries from the world's third largest producer, India.
R.K. Sharma, secretary-general of the Federation of Indian Mineral Industries (FIMI) said on Monday that a precipitous drop in prices since September had made it hard for Indian suppliers to meet their high rail freight and export duty costs, forcing them to cut shipments to a minimum.
Platts' 62-percent iron ore index fell to $116.75 per tonne by the end of Friday, down 19 percent over the week. It has fallen more than $60 per tonne since September, leaving traders to wonder when it will finally hit bottom.
A senior Chinese industry official said on Monday he anticipated further declines in coming weeks.
"In my personal opinion, the price of imported iron ore will fall further, because the trends for the whole sector are unlikely to get better and steel mills don't dare to buy ore," said Zhang Changfu, vice-chairman of the China Iron and Steel Association.
The decline in Indian supplies is unlikely to provide any additional support to prices, especially as Australian and Brazilian suppliers remain more than eager to fill the breach, said Ian Roper, commodities analyst with CLSA in Shanghai.
Roper, who has long been predicting a slump in prices, said the biggest impact on supply was not likely to be felt in India, but at China's own iron mines, where production costs sometimes reach as much as $150 per tonne.
"The relevant part will be the decline in Chinese domestic supply -- you've got 80-100 million tonnes of supply that is uneconomic at $110 a tonne," he said.
The top three global iron ore producers, Australia's Rio Tinto (RIO.AX)(RIO.L) and BHP Billiton (BHP.AX)(BLT.L) as well as Brazil's Vale (VALE5.SA), are all in the middle of a big capacity expansion and they say their plans will not be affected by any fluctuations in global prices.
The big three, operating at much lower costs than their counterparts in India and elsewhere, have said falling prices will help drive competitors out of the market.
"We've finally seen the Australians running their mines at a decent rate in the last few months and that has combined with a slightly slower pace of steel production to send the price down," said Roper.
"The miners will always pursue a volume over price strategy," he said.
INDIAN EXPORTS FALLING
India has already been making efforts to reduce exports, saying it wants to give priority of supply to its own steel sector, but it has struggled to bring new smelting capacity into operation.
FIMI's Sharma said India's biggest iron ore producing state, Karnataka, was now "shut," but no shipments have been made from the southern region since the local government banned exports last year, even though the Supreme Court overturned the ban in April.
Total exports in August fell 43.4 percent from a year ago to 2.65 million tonnes, the latest data from FIMI showed, while shipments to China saw a 24 percent year-on-year decline in the first nine months of 2011.
India charges a higher railway freight on cargoes meant for exports compared with those for local consumption. Earlier this year, the federal government raised the export duty on fines to 20 percent from 5 percent.
CLSA's Roper said it was likely the Indian government would quickly adjust duties and freight rates again in order to give exporters room to operate, especially in the face of a domestic supply glut.
"The Indian government has the ability to respond to keep its mines in the market, but how quickly they do that is debatable," he said.
The prices for lower-grade Indian ores were not now attractive to Chinese buyers, said a senior iron ore trader in eastern China's Shandong province, who sells Indian ore to local steel mills.
"Some suppliers, who have materials available on hand, are not willing to sell their stocks which were bought at high prices," he added.
STOCKPILED HIGH
CISA's Zhang said domestic steel mills were increasingly unwilling to return to the market while their stockpiles of expensive ores were at current levels.
He said stockpiles at eight major ports had now reached as high as 98 million tonnes, with much of that bought at prices of around $165 per tonne.
Zhang's figures were higher than those issued last week by industry consultancy Mysteel, which put port stockpiles at 92.74 million tonnes, still nearly 35 percent higher than the end of October last year.
Roper of CLSA said China's mills were likely to return to the market soon as they replenish inventories for the winter.
"Everyone is destocking like mad now and stepping back from the market while prices are plunging, but this is a short-term cycle and the steel mills will be back within a couple of weeks."
(sourced Reuters)
Sunday, October 30, 2011
Vale to compete on iron ore spot market
Sunday, 30Oct,2011
Dow Jones reported that Brazilian mining company Vale SA prepared to compete on the iron ore spot market rather than sell ore on contracts if that's what clients want.
Mr Jose Carlos Martins Vale executive strategies director said however we can't work with a system whereby if iron ore prices fall they want spot prices and if they go up they want fixed contract prices.
He said that "We've got no dogma at Vale on this. We're not high cost producers. We're prepared to compete at spot market prices."
Mr Martins said spot market prices plunged mainly due to credit restrictions in China which are making it more difficult for steelmakers and traders to purchase iron ore supplies.
He said that “Vale is negotiating on an individual basis with its clients to ascertain what kind of pricing system they prefer following recent market turbulence. The Chinese steelmakers are quite aggressively showing their preference for a system nearer the spot price while the Europeans and Japanese tend to prefer contracts which may give greater stability.”
He added that "Our tendency is to accompany market movements. We're going to accept what our customers decide."
Mr Martins said "The Chinese prefer a price nearer the market situation. The market is trending more to spot market prices in what is an almost irreversible move and a return to the annual benchmark system is now completely out of the question."
He said that however Vale isn't prepared to give discounts to customers if they change to a spot-price basis. He said that "It's not a free ride, if customers want spot prices and they must guarantee they will take the volumes already agreed."
He added that "Quarterly contracts are meanwhile bearable for both sides."
Iron ore producers and steelmaking customers worldwide agreed to adopt a quarterly contract pricing system for iron ore in April 2010 after the 40 year old annual benchmark pricing system fell apart during the global economic crisis due to Chinese pressure for cheaper prices near spot market prices.
Sourced from Dow Jones
Dow Jones reported that Brazilian mining company Vale SA prepared to compete on the iron ore spot market rather than sell ore on contracts if that's what clients want.
Mr Jose Carlos Martins Vale executive strategies director said however we can't work with a system whereby if iron ore prices fall they want spot prices and if they go up they want fixed contract prices.
He said that "We've got no dogma at Vale on this. We're not high cost producers. We're prepared to compete at spot market prices."
Mr Martins said spot market prices plunged mainly due to credit restrictions in China which are making it more difficult for steelmakers and traders to purchase iron ore supplies.
He said that “Vale is negotiating on an individual basis with its clients to ascertain what kind of pricing system they prefer following recent market turbulence. The Chinese steelmakers are quite aggressively showing their preference for a system nearer the spot price while the Europeans and Japanese tend to prefer contracts which may give greater stability.”
He added that "Our tendency is to accompany market movements. We're going to accept what our customers decide."
Mr Martins said "The Chinese prefer a price nearer the market situation. The market is trending more to spot market prices in what is an almost irreversible move and a return to the annual benchmark system is now completely out of the question."
He said that however Vale isn't prepared to give discounts to customers if they change to a spot-price basis. He said that "It's not a free ride, if customers want spot prices and they must guarantee they will take the volumes already agreed."
He added that "Quarterly contracts are meanwhile bearable for both sides."
Iron ore producers and steelmaking customers worldwide agreed to adopt a quarterly contract pricing system for iron ore in April 2010 after the 40 year old annual benchmark pricing system fell apart during the global economic crisis due to Chinese pressure for cheaper prices near spot market prices.
Sourced from Dow Jones
Saturday, October 29, 2011
Vale to compete on iron ore spot market
Saturday, 29 Oct 2011
Dow Jones reported that Brazilian mining company Vale SA prepared to compete on the iron ore spot market rather than sell ore on contracts if that's what clients want.
Mr Jose Carlos Martins Vale executive strategies director said however we can't work with a system whereby if iron ore prices fall they want spot prices and if they go up they want fixed contract prices.
He said that "We've got no dogma at Vale on this. We're not high cost producers. We're prepared to compete at spot market prices."
Mr Martins said spot market prices plunged mainly due to credit restrictions in China which are making it more difficult for steelmakers and traders to purchase iron ore supplies.
He said that “Vale is negotiating on an individual basis with its clients to ascertain what kind of pricing system they prefer following recent market turbulence. The Chinese steelmakers are quite aggressively showing their preference for a system nearer the spot price while the Europeans and Japanese tend to prefer contracts which may give greater stability.”
He added that "Our tendency is to accompany market movements. We're going to accept what our customers decide."
Mr Martins said "The Chinese prefer a price nearer the market situation. The market is trending more to spot market prices in what is an almost irreversible move and a return to the annual benchmark system is now completely out of the question."
He said that however Vale isn't prepared to give discounts to customers if they change to a spot-price basis. He said that "It's not a free ride, if customers want spot prices and they must guarantee they will take the volumes already agreed."
He added that "Quarterly contracts are meanwhile bearable for both sides."
Iron ore producers and steelmaking customers worldwide agreed to adopt a quarterly contract pricing system for iron ore in April 2010 after the 40 year old annual benchmark pricing system fell apart during the global economic crisis due to Chinese pressure for cheaper prices near spot market prices.
Sourced from Dow Jones
Dow Jones reported that Brazilian mining company Vale SA prepared to compete on the iron ore spot market rather than sell ore on contracts if that's what clients want.
Mr Jose Carlos Martins Vale executive strategies director said however we can't work with a system whereby if iron ore prices fall they want spot prices and if they go up they want fixed contract prices.
He said that "We've got no dogma at Vale on this. We're not high cost producers. We're prepared to compete at spot market prices."
Mr Martins said spot market prices plunged mainly due to credit restrictions in China which are making it more difficult for steelmakers and traders to purchase iron ore supplies.
He said that “Vale is negotiating on an individual basis with its clients to ascertain what kind of pricing system they prefer following recent market turbulence. The Chinese steelmakers are quite aggressively showing their preference for a system nearer the spot price while the Europeans and Japanese tend to prefer contracts which may give greater stability.”
He added that "Our tendency is to accompany market movements. We're going to accept what our customers decide."
Mr Martins said "The Chinese prefer a price nearer the market situation. The market is trending more to spot market prices in what is an almost irreversible move and a return to the annual benchmark system is now completely out of the question."
He said that however Vale isn't prepared to give discounts to customers if they change to a spot-price basis. He said that "It's not a free ride, if customers want spot prices and they must guarantee they will take the volumes already agreed."
He added that "Quarterly contracts are meanwhile bearable for both sides."
Iron ore producers and steelmaking customers worldwide agreed to adopt a quarterly contract pricing system for iron ore in April 2010 after the 40 year old annual benchmark pricing system fell apart during the global economic crisis due to Chinese pressure for cheaper prices near spot market prices.
Sourced from Dow Jones
Thursday, October 27, 2011
Vale Profit Misses Analysts’ Estimates As Currency Fall Boosts Dollar Debt
Thu, Oct27, 2011
Vale SA (VALE5), the world’s largest iron- ore producer, posted its first decline in quarterly profit in two years and missed analysts’ estimates after a weaker Brazilian real boosted dollar-denominated debt.
Third-quarter net income fell to $4.94 billion, or 94 cents a share, from $6.04 billion, or $1.13 a share, a year earlier, Rio de Janeiro-based Vale said late yesterday. The company was expected to post per-share profit of $1.17 excluding some items, the average of 12 analysts in a Bloomberg survey. Vale had a financial loss of $2.19 billion related to the real’s drop, while sales rose 16 percent to $16.4 billion.
Vale dropped to its lowest in more than two months on Oct. 20 after iron-ore prices slumped on concern about slowing demand in China and fear the European debt crisis will spread. ArcelorMittal, the world’s biggest steelmaker, is idling some plants in Europe and South Korea’s Posco will cut spending and reduce costs on weaker demand for the alloy used in cars.
The foreign exchange loss “was a bit higher than originally estimated,” Rafael Weber, an equity analyst at Geracao Futuro Corretora, said in a telephone interview from Porto Alegre, Brazil. “With the appreciation of the real, it will be recovered in the following quarter.”
The real slumped 17 percent in the third quarter, the second-worst emerging market performer after Poland, increasing the value of Vale’s dollar-denominated debt in local currency.
Rising Revenue
Earnings before interest, tax, depreciation and amortization, or Ebitda, climbed 9.2 percent to a record $9.63 billion in the quarter, driven by higher iron-ore, nickel and copper revenue, the company said. Vale said it sold iron ore during the period at an average of $151.30 per metric ton, 18 percent more than the year-earlier period.
The company said it’s confident in the long-term outlook for mineral and metals markets amid global financial turmoil. The recent fall in iron-ore prices is related to higher seasonal supply from Brazil and Australia and China’s credit policy, which affects iron-ore traders by not giving them the option of using their stocks as credit guarantee, it said.
“We foresee prices to remain high for a long period ahead as the global iron-ore market is very likely to continue to show strong fundamentals,” Vale said in the statement. “The main reason for the decline in the net income was the depreciation of the real against the dollar.”
“It’s not that you are taking on more debt, it’s that your liability is going up because of the exchange rate,” Rene Kleyweg, an equity analyst at UBS AG, said in a telephone interview from London Oct. 25. “From a reporting numbers standpoint it means your net income gets dragged back.” He rates the stock a “buy.”
Record at Carajas
This is the first time since the third quarter of 2009 that Vale’s quarterly net income fell from a year earlier.
Third-quarter iron-ore output rose 6.4 percent to a record 87.9 million metric tons, after Carajas, the world’s biggest iron-ore mine, recorded record production of 30.9 million metric tons. Nickel output rose 30 percent to 58,000 metric tons, while copper production climbed 46 percent to a record 84,000 metric tons, the company said. Potash production rose about 7.3 percent to 166,000 tons.
Iron-ore and pellet volumes sold during the quarter fell 1.4 percent to 77.5 million metric tons, the company said, adding that the gap between production and sales was explained by lower iron-ore demand in Brazil, the need to rebuild stocks and the start of a distribution center in Oman.
“Vale needs to continue with its sales at a normal level because accumulating inventories to a high level is bad,” Geracao Futuro’s Weber said.
The company’s net debt as of Sept. 30 rose to $15.4 billion, from $11.2 billion at the end of the previous quarter.
Vale invested $4.53 billion, excluding acquisitions, during the quarter, about 19 percent of its $24 billion spending plan until the first quarter of 2012.
Vale, the world’s second-largest mining company by market value, plans to pay a record $12 billion in dividends and share buybacks this year, boosting capital returns to investors as it faces project delays and cost increases.
Sliding Prices
The company is forecast to post a record $26.5 billion in net income excluding some items during 2011, up from $17.3 billion last year, according to 16 analyst estimates compiled by Bloomberg.
Iron-ore prices for immediate delivery extended their slump this week and fell below $130 for the first time since July 2010 yesterday. The price of ore with 62 percent iron content delivered to the Chinese port of Tianjin declined 3.3 percent to $127.40 a metric ton, its 13th-consecutive drop, according to The Steel Index Ltd.
The cash price fell $10.20 yesterday, or 7.2 percent, its biggest slump since Aug. 20, 2009.
The Chinese economy grew 9.1 percent during the third quarter from a year earlier, the slowest pace since 2009. Vale sold about 45 percent of its iron-ore and pellets to Chinese customers during the third quarter, or about 35 million metric tons, it said yesterday. Europe represented 20 percent of the company’s shipments.
Vale gained 99 centavos, or 2.5 percent, to 40.73 reais in Sao Paulo yesterday. The stock has declined about 16 percent this year, compared with an 18 percent for Brazil’s benchmark Bovespa Index.
(sourced Bloomberg)
Vale SA (VALE5), the world’s largest iron- ore producer, posted its first decline in quarterly profit in two years and missed analysts’ estimates after a weaker Brazilian real boosted dollar-denominated debt.
Third-quarter net income fell to $4.94 billion, or 94 cents a share, from $6.04 billion, or $1.13 a share, a year earlier, Rio de Janeiro-based Vale said late yesterday. The company was expected to post per-share profit of $1.17 excluding some items, the average of 12 analysts in a Bloomberg survey. Vale had a financial loss of $2.19 billion related to the real’s drop, while sales rose 16 percent to $16.4 billion.
Vale dropped to its lowest in more than two months on Oct. 20 after iron-ore prices slumped on concern about slowing demand in China and fear the European debt crisis will spread. ArcelorMittal, the world’s biggest steelmaker, is idling some plants in Europe and South Korea’s Posco will cut spending and reduce costs on weaker demand for the alloy used in cars.
The foreign exchange loss “was a bit higher than originally estimated,” Rafael Weber, an equity analyst at Geracao Futuro Corretora, said in a telephone interview from Porto Alegre, Brazil. “With the appreciation of the real, it will be recovered in the following quarter.”
The real slumped 17 percent in the third quarter, the second-worst emerging market performer after Poland, increasing the value of Vale’s dollar-denominated debt in local currency.
Rising Revenue
Earnings before interest, tax, depreciation and amortization, or Ebitda, climbed 9.2 percent to a record $9.63 billion in the quarter, driven by higher iron-ore, nickel and copper revenue, the company said. Vale said it sold iron ore during the period at an average of $151.30 per metric ton, 18 percent more than the year-earlier period.
The company said it’s confident in the long-term outlook for mineral and metals markets amid global financial turmoil. The recent fall in iron-ore prices is related to higher seasonal supply from Brazil and Australia and China’s credit policy, which affects iron-ore traders by not giving them the option of using their stocks as credit guarantee, it said.
“We foresee prices to remain high for a long period ahead as the global iron-ore market is very likely to continue to show strong fundamentals,” Vale said in the statement. “The main reason for the decline in the net income was the depreciation of the real against the dollar.”
“It’s not that you are taking on more debt, it’s that your liability is going up because of the exchange rate,” Rene Kleyweg, an equity analyst at UBS AG, said in a telephone interview from London Oct. 25. “From a reporting numbers standpoint it means your net income gets dragged back.” He rates the stock a “buy.”
Record at Carajas
This is the first time since the third quarter of 2009 that Vale’s quarterly net income fell from a year earlier.
Third-quarter iron-ore output rose 6.4 percent to a record 87.9 million metric tons, after Carajas, the world’s biggest iron-ore mine, recorded record production of 30.9 million metric tons. Nickel output rose 30 percent to 58,000 metric tons, while copper production climbed 46 percent to a record 84,000 metric tons, the company said. Potash production rose about 7.3 percent to 166,000 tons.
Iron-ore and pellet volumes sold during the quarter fell 1.4 percent to 77.5 million metric tons, the company said, adding that the gap between production and sales was explained by lower iron-ore demand in Brazil, the need to rebuild stocks and the start of a distribution center in Oman.
“Vale needs to continue with its sales at a normal level because accumulating inventories to a high level is bad,” Geracao Futuro’s Weber said.
The company’s net debt as of Sept. 30 rose to $15.4 billion, from $11.2 billion at the end of the previous quarter.
Vale invested $4.53 billion, excluding acquisitions, during the quarter, about 19 percent of its $24 billion spending plan until the first quarter of 2012.
Vale, the world’s second-largest mining company by market value, plans to pay a record $12 billion in dividends and share buybacks this year, boosting capital returns to investors as it faces project delays and cost increases.
Sliding Prices
The company is forecast to post a record $26.5 billion in net income excluding some items during 2011, up from $17.3 billion last year, according to 16 analyst estimates compiled by Bloomberg.
Iron-ore prices for immediate delivery extended their slump this week and fell below $130 for the first time since July 2010 yesterday. The price of ore with 62 percent iron content delivered to the Chinese port of Tianjin declined 3.3 percent to $127.40 a metric ton, its 13th-consecutive drop, according to The Steel Index Ltd.
The cash price fell $10.20 yesterday, or 7.2 percent, its biggest slump since Aug. 20, 2009.
The Chinese economy grew 9.1 percent during the third quarter from a year earlier, the slowest pace since 2009. Vale sold about 45 percent of its iron-ore and pellets to Chinese customers during the third quarter, or about 35 million metric tons, it said yesterday. Europe represented 20 percent of the company’s shipments.
Vale gained 99 centavos, or 2.5 percent, to 40.73 reais in Sao Paulo yesterday. The stock has declined about 16 percent this year, compared with an 18 percent for Brazil’s benchmark Bovespa Index.
(sourced Bloomberg)
Tuesday, October 25, 2011
Rio Tinto blames iron ore price fall on rival Vale
Tue Oct 25, 2011
* Vale shipments to China to blame for soft market - Rio ore chief
* Says move is only a blip, China market fundamentals strong
* Iron ore price down 19 pct this month
PERTH, Oct 25 (Reuters) - World No. 2 iron ore producer Rio Tinto cited a strategy by bigger rival Vale to divert European shipments to China for a dramatic softening in market prices.
Rio's iron ore division head and Australian chief executive Sam Walsh said a move by Vale to ship more to China had not caused Rio to curb its own iron ore production runs, which are running at full capacity.
"The softening in iron ore prices relates to Vale shipping material that was destined for Europe into China," Walsh told a business forum in Perth on Tuesday.
Spot iron ore prices have shed 19 percent so far this month in a sell-off largely fueled by slower construction steel demand in China.
China is the world's biggest customer of imported iron ore, accounting for around 400 million tonnes annually.
In Europe, a more important market for Vale than Rio, steel markets have fallen under a cloud of doubt given its debt crisis.
Growth of Europe's steel production will slow in 2012 along with activity in the steel-using sectors, Eurofer, the European steel producers association has forecast.
Spot iron ore prices on Tuesday fell nearly 4 percent. It was the biggest single-day drop since August 2009 as thin demand from China forced some traders to sell at a loss.
"Traders who can't hold positions because they don't have sufficient funding are selling at a loss of $40-$45 a tonne," said a Singapore-based iron ore trader.
Despite price falls, all three mega-producers including Rio are ramping up production.
"My business is shipping flat out," Walsh said. "We are producing at record rates."
Walsh downplayed the lasting effect of Vale's strategy.
"There's a limit to what they can physically ship," Walsh later told Reuters on the side of the forum. "We're not overly concerned about that."
He said Rio remains confident in the long-term drivers of economic growth and iron ore demand in China.
In the short term, the market was worried about the European crisis, but it was not having a direct impact on Rio's operations, he said.
"The issue is contagion. It's perception, it's fears," he said. "When you look at the fundamentals of China, India, South Asia, North Asia, we find it's very robust."
Vale, the largest of the three top producers, reluctantly discarded the once-a-year-price system in 2010 only after BHP Billiton and Rio bowed out, cognisant it would upset customers. In the end it had no choice but to follow suit.
Now, with spot prices trailing the last quarter's average price mark and lead times on Brazilian cargoes to China much longer than the Australian miners, Vale has announced it is open to alternative pricing systems.
Some analysts have interpreted this as paramount to Vale offering discounted iron ore to boost sales.
sourced Retuers
* Vale shipments to China to blame for soft market - Rio ore chief
* Says move is only a blip, China market fundamentals strong
* Iron ore price down 19 pct this month
PERTH, Oct 25 (Reuters) - World No. 2 iron ore producer Rio Tinto cited a strategy by bigger rival Vale to divert European shipments to China for a dramatic softening in market prices.
Rio's iron ore division head and Australian chief executive Sam Walsh said a move by Vale to ship more to China had not caused Rio to curb its own iron ore production runs, which are running at full capacity.
"The softening in iron ore prices relates to Vale shipping material that was destined for Europe into China," Walsh told a business forum in Perth on Tuesday.
Spot iron ore prices have shed 19 percent so far this month in a sell-off largely fueled by slower construction steel demand in China.
China is the world's biggest customer of imported iron ore, accounting for around 400 million tonnes annually.
In Europe, a more important market for Vale than Rio, steel markets have fallen under a cloud of doubt given its debt crisis.
Growth of Europe's steel production will slow in 2012 along with activity in the steel-using sectors, Eurofer, the European steel producers association has forecast.
Spot iron ore prices on Tuesday fell nearly 4 percent. It was the biggest single-day drop since August 2009 as thin demand from China forced some traders to sell at a loss.
"Traders who can't hold positions because they don't have sufficient funding are selling at a loss of $40-$45 a tonne," said a Singapore-based iron ore trader.
Despite price falls, all three mega-producers including Rio are ramping up production.
"My business is shipping flat out," Walsh said. "We are producing at record rates."
Walsh downplayed the lasting effect of Vale's strategy.
"There's a limit to what they can physically ship," Walsh later told Reuters on the side of the forum. "We're not overly concerned about that."
He said Rio remains confident in the long-term drivers of economic growth and iron ore demand in China.
In the short term, the market was worried about the European crisis, but it was not having a direct impact on Rio's operations, he said.
"The issue is contagion. It's perception, it's fears," he said. "When you look at the fundamentals of China, India, South Asia, North Asia, we find it's very robust."
Vale, the largest of the three top producers, reluctantly discarded the once-a-year-price system in 2010 only after BHP Billiton and Rio bowed out, cognisant it would upset customers. In the end it had no choice but to follow suit.
Now, with spot prices trailing the last quarter's average price mark and lead times on Brazilian cargoes to China much longer than the Australian miners, Vale has announced it is open to alternative pricing systems.
Some analysts have interpreted this as paramount to Vale offering discounted iron ore to boost sales.
sourced Retuers
Tuesday, October 18, 2011
Vale open to different iron ore pricing-CEO
Tue Oct 18, 2011
* Spot price fall likely to bring price model scrutiny
* Vale not planning to abandon current pricing formula
BRASILIA, Oct 18 (Reuters) - Brazilian miner Vale is open to discussing different iron ore pricing systems with its clients, the company's chief executive said on Tuesday, as a tumble in the price of ore has led to pressure from steel mills for more flexibility.
Vale has told Chinese steelmakers it will give them options to buy the raw material cheaper, sources told Reuters last week, as spot prices for iron ore have dropped below the quarterly contract system created last year.
"Vale has a pricing formula, but if someone wants to buy under different terms we are open to discussion," Vale CEO Murilo Ferreira said, adding however that the company had no plans to abandon its current quarterly pricing model.
The willingness to negotiate suggests a changing dynamic between steel mills and miners, which now find themselves facing weaker demand due to stagnant growth in the United States and a sharp economic downturn in Europe.
But Ferreira said that demand in China, which posted slower economic growth of 9.1 percent in the past quarter, remains firm.
A market source on Monday told Reuters that Vale could eliminate a clause in its quarterly contracts such that steel makers could buy ore slightly cheaper.
Ore with 62 percent iron content fell to $150.30 a tonne on Tuesday, down $3.10 from the previous day, amid worries about slowing growth in China and the global economy.
Mining companies in 2010 created a quarterly system for iron ore that replaced the aging benchmark system, one based on annual talks between miners and steel mills.
The quarterly iron contracts are based on the average of spot prices over a three-month period ending a month before the start of each quarter.
(sourced Reuters)
* Spot price fall likely to bring price model scrutiny
* Vale not planning to abandon current pricing formula
BRASILIA, Oct 18 (Reuters) - Brazilian miner Vale is open to discussing different iron ore pricing systems with its clients, the company's chief executive said on Tuesday, as a tumble in the price of ore has led to pressure from steel mills for more flexibility.
Vale has told Chinese steelmakers it will give them options to buy the raw material cheaper, sources told Reuters last week, as spot prices for iron ore have dropped below the quarterly contract system created last year.
"Vale has a pricing formula, but if someone wants to buy under different terms we are open to discussion," Vale CEO Murilo Ferreira said, adding however that the company had no plans to abandon its current quarterly pricing model.
The willingness to negotiate suggests a changing dynamic between steel mills and miners, which now find themselves facing weaker demand due to stagnant growth in the United States and a sharp economic downturn in Europe.
But Ferreira said that demand in China, which posted slower economic growth of 9.1 percent in the past quarter, remains firm.
A market source on Monday told Reuters that Vale could eliminate a clause in its quarterly contracts such that steel makers could buy ore slightly cheaper.
Ore with 62 percent iron content fell to $150.30 a tonne on Tuesday, down $3.10 from the previous day, amid worries about slowing growth in China and the global economy.
Mining companies in 2010 created a quarterly system for iron ore that replaced the aging benchmark system, one based on annual talks between miners and steel mills.
The quarterly iron contracts are based on the average of spot prices over a three-month period ending a month before the start of each quarter.
(sourced Reuters)
Monday, October 17, 2011
Vale may tweak iron contracts as prices fall: source
Mon Oct 17, 2011
* Vale seeks to bring quarterly price closer to spot
* Iron ore prices weakening as demand softens
RIO DE JANEIRO Oct 17 (Reuters) - Brazilian mining giant Vale could alter iron ore contracts to make quarterly prices more closely match spot prices, a market source told Reuters, as a weakening global economy cuts into demand for the steel-making ingredient.
The quarterly iron contracts are based on the average of spot prices over a three-month period ending a month before the start of each quarter.
Vale could change a clause which says the contract price will remain the same from one quarter to the next unless the change in the spot price average is greater than 5 percent -- a clause that hurts buyers in times of falling prices.
"I spoke with Vale in recent weeks and they said they could review that clause," said the source, who asked not to be identified. A Vale spokeswoman said the company had no comment on the issue.
Without this provision, iron ore prices for the fourth quarter contracts would be 1 to 2 percent lower.
The fourth quarter price of $175 per tonne is now considerably above the spot price , which on Monday was close to a 12-month low at $153.40.
Sources at steel mills in top iron importer China last week said ore miners including Vale have given mills the option to buy the raw material at prices below the fourth-quarter price following the tumble in spot rates.
When spot market rates are below contract rates, steel mills and traders move toward the spot market and begin pressuring iron miners to lower the contract price.
A similar situation caused the demise of the benchmark pricing system, which was based on annual negotiations between miners and steel mills. Chinese buyers in 2008 and 2009 abandoned benchmark contracts to buy cheaper spot ore, then returned to benchmark contracts when spot prices rose again.
That led the miners to scrap the benchmark system and create a quarterly mechanism based on spot-price averages.
BHP Billiton , the world's No. 3 iron ore miner, is calling for a global trading platform for spot prices and the use of derivatives to bring greater transparency to the iron ore market. It is backing the creation of an electronic trading platform for iron, which it hopes will be launched at the end of 2011 or in early 2012.
(sourced Reuters)
* Vale seeks to bring quarterly price closer to spot
* Iron ore prices weakening as demand softens
RIO DE JANEIRO Oct 17 (Reuters) - Brazilian mining giant Vale could alter iron ore contracts to make quarterly prices more closely match spot prices, a market source told Reuters, as a weakening global economy cuts into demand for the steel-making ingredient.
The quarterly iron contracts are based on the average of spot prices over a three-month period ending a month before the start of each quarter.
Vale could change a clause which says the contract price will remain the same from one quarter to the next unless the change in the spot price average is greater than 5 percent -- a clause that hurts buyers in times of falling prices.
"I spoke with Vale in recent weeks and they said they could review that clause," said the source, who asked not to be identified. A Vale spokeswoman said the company had no comment on the issue.
Without this provision, iron ore prices for the fourth quarter contracts would be 1 to 2 percent lower.
The fourth quarter price of $175 per tonne is now considerably above the spot price , which on Monday was close to a 12-month low at $153.40.
Sources at steel mills in top iron importer China last week said ore miners including Vale have given mills the option to buy the raw material at prices below the fourth-quarter price following the tumble in spot rates.
When spot market rates are below contract rates, steel mills and traders move toward the spot market and begin pressuring iron miners to lower the contract price.
A similar situation caused the demise of the benchmark pricing system, which was based on annual negotiations between miners and steel mills. Chinese buyers in 2008 and 2009 abandoned benchmark contracts to buy cheaper spot ore, then returned to benchmark contracts when spot prices rose again.
That led the miners to scrap the benchmark system and create a quarterly mechanism based on spot-price averages.
BHP Billiton , the world's No. 3 iron ore miner, is calling for a global trading platform for spot prices and the use of derivatives to bring greater transparency to the iron ore market. It is backing the creation of an electronic trading platform for iron, which it hopes will be launched at the end of 2011 or in early 2012.
(sourced Reuters)
Saturday, October 15, 2011
Chinese mills offered better Q4 iron ore pricing options
Saturday, 15 Oct 2011
Reuters reported that a number of Chinese steel mills have been given the option to buy iron ore for the fourth quarter based on October to December spot rates instead of a common industry practice to buy on prices based on previous months.
Three mill sources briefed on the change told Reuters that miners, such as Vale SA have offered Chinese mills' the option to pay for fourth quarter supplies based on more current rates following the recent tumble in ore prices.
A source with one of China mid sized steel mills said "We received a letter from Vale asking us for our opinion of changing fourth quarter pricing to be based on October-December spot rates."
The spokeswoman at Vale was not immediately available for comment.
Reuters reported on Thursday that Chinese mills were seeking to postpone shipments or renegotiate fourth-quarter iron ore contracts.
Currently, prices for quarterly contracts are generally based on the average index prices over a three-month period ending a month before the start of each quarter. That means that prices for the fourth quarter would normally have been based on average spot prices from June to August when prices were higher than now.
(sourced from Reuters)
Reuters reported that a number of Chinese steel mills have been given the option to buy iron ore for the fourth quarter based on October to December spot rates instead of a common industry practice to buy on prices based on previous months.
Three mill sources briefed on the change told Reuters that miners, such as Vale SA have offered Chinese mills' the option to pay for fourth quarter supplies based on more current rates following the recent tumble in ore prices.
A source with one of China mid sized steel mills said "We received a letter from Vale asking us for our opinion of changing fourth quarter pricing to be based on October-December spot rates."
The spokeswoman at Vale was not immediately available for comment.
Reuters reported on Thursday that Chinese mills were seeking to postpone shipments or renegotiate fourth-quarter iron ore contracts.
Currently, prices for quarterly contracts are generally based on the average index prices over a three-month period ending a month before the start of each quarter. That means that prices for the fourth quarter would normally have been based on average spot prices from June to August when prices were higher than now.
(sourced from Reuters)
Friday, October 14, 2011
BHP set to bid $6bn for US coal giant Walter Energy
By Sarah-Jane Tasker,The Australian
October 15, 2011
BHP Billiton, the world's biggest mining company, is considering a $US6 billion ($5.86bn) takeover of a US coal producer to support its view that supply of the sought-after commodity will be scarcer than iron ore in the next decade.
Speculation from London yesterday suggested that the global major, fresh from receiving approval this week for its $30bn Olympic Dam copper and uranium expansion in South Australia, was circling Walter Energy, the world's largest producer of coal used for steelmaking.
The Birmingham, Alabama-based company was put in play in July, when activist hedge fund Audley Capital wrote to the board calling for it to seek a buyer because it lacked the leadership to take advantage of an "unprecedented market opportunity" after coal prices jumped.
Walter, whose share price has been cut in half since April, rebounded strongly on the takeover speculation. It jumped 13 per cent in New York to $US75.22 -- the biggest gain in five weeks.
With Walter Energy's market capitalised at about $US4.7bn, a bid of about $US6bn could be the target in any takeover move, given that analysts expect a 30 per cent bid premium.
Walter, which operates mines in Alabama, West Virginia, British Columbia and Wales, acquired Vancouver-based Western Coal in April for $C5.3bn, boosting its reach into Canada.
BHP chief executive Marius Kloppers is expected to be in Canada early next week, after the company's annual general meeting in London, where he is to meet Saskatchewan Premier Brad Wall.
While his visit is said to be an attempt to ease tensions between the miner and the government -- after BHP's $US39bn bid for Potash Corporation of Saskatchewan was killed off earlier this year because of political opposition to the deal -- it is also timely because of the bid speculation.
The global major's successful acquisitions this year were in shale gas in the US through a $US12.1bn bid for Petrohawk -- the miner's biggest acquisition -- and the $US4.75bn purchase of Chesapeake Energy's Arkansas shale ground.
But with the company tipping coal demand to increase in a supply-constrained market, its attention could now be turning to the steelmaking commodity.
BHP's chief executive of ferrous and coal, Marcus Randolph, said the company expected coking coal to be scarcer than iron ore over the next decade.
"We are more bearish about iron ore than coking coal," Mr Randolph said during the annual World Steel Association conference in Paris last week.
"Between now and 2020 there is going to be a lot more iron ore supply coming into the market than coking coal, and our expectation is that, of the two, the scarcer over that period of time will be coking coal."
One analyst said while it would be a surprise if BHP did bid for Walter, the activity could not be ruled out. "Mr Kloppers' acquisition agenda has always been assets that are large scale, low cost, easy to mine and a strong export market for the product. While this ticks all the boxes, it is not totally compelling," he said.
Rival bidders for Walter Energy could include Anglo American, Rio Tinto, Brazil's Vale and CSN. It was flagged early last month that Anglo American was considering a $US7.5bn bid for Walter.
Britain's Independent newspaper reported there was "vague speculation" that JPMorgan and Goldman Sachs had been called in as advisers to potential bidders.
BHP said it did not comment on market speculation.
(sourced The Australian)
October 15, 2011
BHP Billiton, the world's biggest mining company, is considering a $US6 billion ($5.86bn) takeover of a US coal producer to support its view that supply of the sought-after commodity will be scarcer than iron ore in the next decade.
Speculation from London yesterday suggested that the global major, fresh from receiving approval this week for its $30bn Olympic Dam copper and uranium expansion in South Australia, was circling Walter Energy, the world's largest producer of coal used for steelmaking.
The Birmingham, Alabama-based company was put in play in July, when activist hedge fund Audley Capital wrote to the board calling for it to seek a buyer because it lacked the leadership to take advantage of an "unprecedented market opportunity" after coal prices jumped.
Walter, whose share price has been cut in half since April, rebounded strongly on the takeover speculation. It jumped 13 per cent in New York to $US75.22 -- the biggest gain in five weeks.
With Walter Energy's market capitalised at about $US4.7bn, a bid of about $US6bn could be the target in any takeover move, given that analysts expect a 30 per cent bid premium.
Walter, which operates mines in Alabama, West Virginia, British Columbia and Wales, acquired Vancouver-based Western Coal in April for $C5.3bn, boosting its reach into Canada.
BHP chief executive Marius Kloppers is expected to be in Canada early next week, after the company's annual general meeting in London, where he is to meet Saskatchewan Premier Brad Wall.
While his visit is said to be an attempt to ease tensions between the miner and the government -- after BHP's $US39bn bid for Potash Corporation of Saskatchewan was killed off earlier this year because of political opposition to the deal -- it is also timely because of the bid speculation.
The global major's successful acquisitions this year were in shale gas in the US through a $US12.1bn bid for Petrohawk -- the miner's biggest acquisition -- and the $US4.75bn purchase of Chesapeake Energy's Arkansas shale ground.
But with the company tipping coal demand to increase in a supply-constrained market, its attention could now be turning to the steelmaking commodity.
BHP's chief executive of ferrous and coal, Marcus Randolph, said the company expected coking coal to be scarcer than iron ore over the next decade.
"We are more bearish about iron ore than coking coal," Mr Randolph said during the annual World Steel Association conference in Paris last week.
"Between now and 2020 there is going to be a lot more iron ore supply coming into the market than coking coal, and our expectation is that, of the two, the scarcer over that period of time will be coking coal."
One analyst said while it would be a surprise if BHP did bid for Walter, the activity could not be ruled out. "Mr Kloppers' acquisition agenda has always been assets that are large scale, low cost, easy to mine and a strong export market for the product. While this ticks all the boxes, it is not totally compelling," he said.
Rival bidders for Walter Energy could include Anglo American, Rio Tinto, Brazil's Vale and CSN. It was flagged early last month that Anglo American was considering a $US7.5bn bid for Walter.
Britain's Independent newspaper reported there was "vague speculation" that JPMorgan and Goldman Sachs had been called in as advisers to potential bidders.
BHP said it did not comment on market speculation.
(sourced The Australian)
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