Australian iron ore and coking coal exports to remain steady despite financial mahyem

Saturday, 20 Aug 2011

WA Today reported that the contagion might be global, but it seems Australia's two biggest exports are largely immune to the mayhem that has unfolded on markets in recent days.

Iron ore and coking coal prices have held firm at near record highs and experts said that they do not expect that to change any time soon.

UBS commodities analyst Mr Tom Price said the fact those commodities were typically sold by direct negotiation between producers and consumers helped ensure that prices were determined by fundamental supply and demand factors.

He said that ''There is very minimal speculative activity in these trades and so they are isolated from the very short term dramatic shifts that we've been seeing in global resource equities and commodity prices.”

He said that there would need to be longer-term negativity in global markets before there was any impact on iron ore and coal prices.

''The raw materials for steel are still secured largely under contracts, so you would need evidence that this market weakness would persist over several months before you would see a sustained decline in the value of iron ore and metallurgical coal. So we shouldn't expect any real shock to those two markets.''

That diagnosis bodes well for the Australian economy, which is expected to export close to $80 billion worth of iron ore and close to USD 50 billion worth of coking coal in the year to June 2012.

Similar confidence was expressed by analysts at Macquarie Research, who noted yesterday that prices for iron ore and coking coal had performed solidly in recent months, despite the middle of the calendar year being a traditionally weak period for those commodities.

Despite predicting a volatile period ahead for other metals, Macquarie analysts said iron ore loomed as a safe bet.

The note said that ''The more China-exposed commodities such as iron ore are likely to outperform their exchange-traded peers.”

(sourced WA Today)

Tata Steel's raw material costs to go up to USD 7 bn in FY'11

10 Mar,2011, 02.22PM IST,PTI
NEW DELHI: Tata Steel Group today said its expenses on key raw materials are likely to go up by USD 1 billion in the current fiscal to USD 7 billion due to a rise in input costs.

"We expect a USD 1 billion rise on raw material expenses to USD 7 billion this fiscal on account of floods in Australia and increased activity from China," Tata Steel Group Director (Procurement) Kees Gerretse said on the sidelines of an event here.

The costs on inputs would further escalate by around 15 per cent next fiscal over 2010-11 levels, he added, attributing the rise to higher iron ore and coking coal prices, which went past USD 300 a tonne as a result of a global scarcity in the wake of floods in Australia's Queensland.

Steel prices, as a result, will go up next fiscal as the manufacturers of the alloy are unlikely to absorb the escalated input costs on the back of increased demand for the alloy, he added.

Queensland contributes over 60 per cent of coal exports from Australia, world's largest supplier of coking coal.

As a whole, Tata Steel Group, with a total steel-making capacity of 28.1 million tonnes per annum (mtpa), buys around 17 million tonnes coking coal and up to 27 million tonnes of iron ore a year.

While Tata Steel India has captive iron ore sources, the European operation has none of the key raw materials to feed the plants. Its entire requirement is met through imports. The company had earlier said it would ensure 50 per cent of the key inputs requirement for its European subsidiary by 2015.

Tata Steel has already acquired stake in two coal mines in Mozambique and one in Australia. It has also stakes in an iron ore mine in Ivory Coast and two in Canada.

Gerretse said coal production from Mozambique blocks would peak at 2 mtpa in next two years. Iron ore from the mines in Canada would start coming in from 2014.

The group, he said, was looking at opportunities for acquiring greenfield coal and iron ore assets, but for the time being, its focus would be on the existing mines.

"The price of coking coal will start normalising from August onwards. Iron ore price is also likely to remain stable after the second quarter," he said.

China's energy demands fuel bonanza for BHP and Rio

March 01, 2011 12:00AM
By David Uren,Economics Correspondent, From:The Australian

Resource giants BHP Billiton and Rio Tinto are about to reap price rises in excess of 20 per cent for iron ore and coking coal in contracts with steel mills in China and Japan that are about to be renegotiated.

The June quarter contracts will lift prices beyond those reached in 2008 before the global financial crisis, with analysts tipping there could be further gains in the September quarter. However, market economists are cautious about endorsing the view of Reserve Bank board member Warwick McKibbin that the resources boom is a bubble set to burst, with at least 40 per cent of the run-up in prices due to loose monetary policy in the US and Europe.

"Prices for bulk commodities (iron ore and coal) are being driven by China's demand cycle," Westpac senior economist Justin Smirk said. "Little of the financial money in commodity markets is flowing into bulk commodities." (By The Australian)

He said it was impossible to estimate how much of China's demand would be influenced by US monetary policy, but he doubted it would be 40 per cent.

Iron ore and coal contracts are negotiated on the basis of spot market prices between December and February. The contracts will be concluded in coming weeks.

Mr Smirk said iron ore prices were likely to rise by 20 per cent in the June quarter and a further 5 per cent to 10 per cent in the September quarter, with similar increases in coking coal.

A spokesman for Wayne Swan said the government did not expect commodity prices to remain this high but believed strong demand from Asia would continue for some time.

Macquarie Group international economist Mark Tierney said financial flows from loose monetary policy were not to blame for high commodity prices. He said zero interest rates in the US and Europe were contributing to demand, with world economic growth running at 4-5 per cent.

"The level of world GDP is now back to where it was in 2007 and is growing quickly, with China's growth accelerating. You don't have to look around and blame a speculative bubble for that.

"We simply haven't got the supplies that are needed.

"It takes time for the supply response, and by the time it catches up to where demand is now, demand will have grown further." (By The Australian)