Dalian iron ore extends gains to 33-month high, spot eyes break of $80
Iron ore futures in China climbed to their highest in nearly three years on Monday, supported by stronger prices of steel and coking coal, which could push the spot rate well above $80 a tonne.
Spot iron ore has rallied 86 percent this year as surging coal prices prompted Chinese steel mills to use higher grade ore to boost efficiency and consume lesser coal.
Chinese iron ore and coking coal futures both soared by their 9-percent limit before trimming gains.
The most-traded January iron ore on the Dalian Commodity Exchange was up 6.6 percent at 642.50 yuan ($94) a tonne by 0235 GMT after rising as far as 656.50 yuan, its highest since February 2014.
Dalian January coking coal was last up 5.9 percent at 1,628 yuan per tonne after touching a record high of 1,676 yuan.
"Iron ore continued to lift as mills look to buy medium and high grade ores to counter the impact of high coking coal prices," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
"The preference for higher quality iron ores has led to a shortage of it, with some mills even looking to low grade ores as a cost-effective solution."
The sustained strength in futures could push spot iron ore prices higher, with the raw material now within striking distance of $80 a tonne.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI soared 7.4 percent to $79.70 a tonne on Friday, its loftiest since October 2014, according to The Steel Index (TSI).
The spot benchmark increased more than 23 percent last week, its biggest such gain since TSI began tracking prices in October 2008.
Firmer steel prices have also supported appetite for iron ore, with a number of China's leading steel mills hiking their prices for mid-November by 400-500 yuan per tonne, according to TSI.
Rebar, a construction steel product, was up 0.3 percent at 3,051 yuan a tonne on the Shanghai Futures Exchange after hitting 3,220 yuan earlier, its strongest since May 2014.
Signs of China's property sector cooling off may be a threat to the rally in iron ore as well as copper, analysts at investment bank Barclays said.
"As we head into 2017, any signs of a slowdown in China's real estate sector could send copper and, particularly, iron ore back down to lower levels, perhaps rapidly," they said in a report. ($1 = 6.8241 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Biju Dwarakanath)
http://in.reuters.com/article/asia-ironore-idINL4N1DF1QM
Russia’s coal expansion is running out of steam
Despite changes in domestic and international markets, Russia is betting on coal consumption as it moves to develop its eastern regions and pivot from Europe. Will it work?
Coal was meant to help build Siberia and the Far East. The national energy strategy of 2012 aimed to match Soviet levels of coal production by 2030, increase coal power generation to free up natural gas for export, and expand coaling capacity at ports. Production increases have continued steadily the last two years despite economic headwinds in a bid to maintain market share.
In 2010, Russia produced 323.4 million tons of coal and has increased production since. The Ministry of Energy projects this year’s production at 390 million tons. Domestic demand has been flat—aside from a temporary spike due to lower water levels in Siberia last year, which reduced the availability of hydropower. Exports have driven growth, but China also introduced import tariffs on Russian coal in 2014 and is changing its energy mix.
As China and India become price-setters and coal’s prominence declines, Russia’s coalers are quite exposed to external price volatility. Prices have spiked because of underproduction in China, and Chinese firms are playing catch up to stabilize the market. Trends in China, India, and Asia, at large are negative, despite short-term demand growth, and competition from natural gas within Russia threaten numerous investments made by Russian coal companies in recent years.
China’s energy pivot
In 2014, China’s energy usage began to decouple from manufacturing indicators. Many analysts surmised that China’s coal use had peaked. As its economy began shifting towards service sectors, coal production caps were introduced in 10 provinces. Production was down 9.7% the first half of this year from 2015, when it had already begun declining. These cuts are huge. China produces and consumes over half the world’s coal.
From January to May, China’s thermal power generation (coal) was down 3.6%, hydro was up 16.7%, and zero-emission sources increased 20.3%. These trends have continued. China’s apparent demand for coal in September was down 20% from a year earlier, equivalent to a quarter of the international coal trade.
As a result of production cuts, coking coal prices have more than doubled this year. Thermal coal prices are also quite high, nearly $100 a metric ton at the end of October. China is halting expansions of its coal power base and improving underwhelming utilization rates at existing plants on the demand side. Imports account for only 7% China’s consumption going into this year and production cuts only temporarily opened a window for imports.
India’s play for self-sufficiency
India aspires to free itself of coal imports as soon as next year, seeking to replace foreign thermal coal with domestic production. Coal India—the country’s state-mining group—boosted production significantly going into this year. A national plan doubling mining output by 2020 has run aground, however, as power demand only increased 4-5% this year instead of the projected 7-8%. Manufacturing is one of India’s high-growth sectors and will drive demand but overproduction has created dangerous stockpiles of combustible coal lying around.
India has relied on imports for about 11% of its consumption going into 2015. Indonesia—the world’s leading exporter— has closed mines because of a loss of Indian market share this year. Price shocks pose a serious threat to manufacturers and India is insulating itself from volatility while supporting local industries. The power ministry aims to reduce peak-load demand for electricity by 30 gigawatts in the next three years, going so far as to suggest there may be virtually no expansion of coal plants in the next five years. Flooding in August temporarily cut Coal India’s production, contributing to the ongoing spike in prices. India is also moving to use energy more efficiently, using less coal like China.
Challenges at home for coal
Companies like SUEK, Kuzbassrazrezugol, SDS, and Mechel—accounting for over half of Russian production—have bought stakes in Far Eastern ports hoping to benefit from growing Asian demand as Russia has set its sights eastward. Despite surges in prices the last few months, Russian coal firms’ profits have largely gone towards covering logistical expenses. Russia’s primary coal basin—the Kuzbass—lies 3,400 miles from Russia’s ice-free ports on the Pacific. Roughly 95% of Russia’s production lies north of the Arctic Circle, northwest of Kazakhstan in Siberia, or in remote stretches of the Far East.
These distances negate any advantage producers might have over firms further from Asian markets, making price volatility a huge risk. Around 75% of Russia’s production is for thermal, and a third of production is exported. Projected growth of South Korean and Japanese thermal coal demand pales in comparison, particularly as energy efficiency is the central tenet of their respective energy security strategies. Coal faces competition on the domestic heating and power market too.
Though the Kremlin envisaged a decreasing role for natural gas and increasing role for coal by 2030, there were only 2.9 gigawatts of new coal power generation capacity built between 2010 and 2016. Since the Great Recession, Russia’s electricity demand has flat-lined. In 2010, consumption stood at roughly 1,021 kilowatt hours. That figure only grew to 1,036 by 2015, and government led investment has created over-supply, killing private investment. Two-thirds of Russia was gasified as of June this year, a 12.9% increase in the last decade. Even with significant growth in consumer gas debts—20% in 2015 alone—gasifying Eastern Siberia and the Far East remains a national priority. Non-payments for regional governments for gas supplies have risen as well, but most of these debts come from the Northern Caucasus Federal District. Other regions are pushing to realize targets and coal is losing out.
Russian governor Aman Tuleyev of the Kemerovo region—home to over 54% of production—is pushingfurther increases this year despite the weakness of the thermal coal market. The picture isn’t better for coking coal. Manufacturing has contracted or stayed flat since 2014 but is showing signs of improvement heading into next year. However, much of current production is tied to government-led spending through Russia’s military modernization program or state-owned enterprises.
Barring large structural reforms and systemic privatization, centralized spending and planning will have a huge impact on manufacturing figures. Russian steel is most competitive when coal prices are low, which is a ways off as the market adjusts to changing supply-demand dynamics in Asia. Russia imports a quarter of Kazakhstan’s coal production because it is cheap. Kazakhstan’s production is projected to grow due to investment from India and China, a blow to Russian firms fighting to preserve market share.
Prime Minister Medvedev has hinted at the threat of stranded assets in the industry, investments sunk into infrastructure or mines that will soon become irrelevant. Even stronger production figures on the domestic market may not be enough as natural gas consumption in Russia’s east will alleviate the sinkhole that Gazprom’s China projects have thus far been.
Russia’s coal industry will be fine long as prices are artificially high. However, an export market dependent on South Korean and Japanese demand will likely lead to mine closures, layoffs, and company consolidations in the longer run. Production increases are not sustainable under current market conditions, and are more a political than economic endeavor. Coal will lose yet more ground until foreign investors take interest.
http://globalriskinsights.com/2016/11/russias-coal-expansion-is-running-out-of-steam/
Roadblocks to Full Resumption of Mining
Despite clearances, mining in the state has not picked up momentum. One reason is the cap of 20 million tonnes. Secondly, there is lower demand for low-grade iron ore in the international market, forcing mining firms to go slow on production. Besides, there are hosts of local issues like differences between mining companies and truck operators on ore transportation rates, installation of speed governors in trucks, dedicated mining corridors for ore transportation and accidents involving mining trucks. To add to the list, the Sirsaim gram sabha has passed a resolution demanding that the mining company operating in the area recruit 90 per cent of its workforce from among the locals.
The state government, the mining companies and the entities and individuals deriving income from businesses and livelihoods dependent on mining have been hoping for mining to go in full steam after four years of suspension, but operations have been sluggish, adversely affecting their income and activities. Mining operations on a lower scale has left them neither here nor there, though there are reports of people shifting to other businesses for income and jobs for their daily sustenance. Slack mining activity means less income for the mining companies and less royalty and other incomes for the state government, and the dip in the revenues constrains both of them to spend on further growth. Unless the market position improves, the mining companies would continue to go on with lower production as holding ore in large quantities could be a problem and also give easy handle for civil society groups to raise issues of pollution.
The mining companies should go by the directives of the Supreme Court. The Supreme Court had directed the Union ministry of environment and forest to proceed afresh on the issue of environment clearances and issue notices of hearing to the appellant and hold consultations with the concerned experts before passing appropriate orders. The government authorities need to ensure that the orders of the apex court were followed. It was presumed by the stakeholders that the problems concerning mining ended with the Supreme Court giving a go-ahead after prolonged litigation that lasted almost three years after the mining was first suspended by the state government and thereafter by the withdrawal of environment clearances from the central authorities. While the apex court has cleared the way for the resumption of mining, the local issues appear to be becoming stumbling blocks for the mining companies to start full-fledged operations.
Despite the fact that it was necessary that all were taken on board, neither the government nor the mining companies have managed to sort out the problems arising out of the demands of the truck operators, the local people and other stakeholders. The lack of resolution of the issues has slowed down mining activities, which were at a low key even otherwise owing to the international market situation for iron ore. The mining corridors remain unfinished. As people often got killed in accidents involving mining trucks, the state government had come up with the idea of having dedicated mining corridors for movement of ore-carrying trucks, bypassing the routes of normal traffic through residential settlements. Though the work on the corridors was started, it was discontinued after the suspension of mining and not much headway has been made since then. Has the work been slowed down because of low demand for the iron ore? Would the authorities have chosen to remain in almost ‘dormant’ state if the demand for ore was as prevalent in 2011-12?
Dedicated mining corridors must be constructed as ups and downs are normal in business and ore demand might pick up sooner or later, pushing mining to resume in full swing. The government must also force truckers to install speed governors to prevent accidents. The authorities should not wait till more people die or till mining resumes in full swing. The state government is yet to notify the rates for transportation of freshly mined ore; as the truckers have been threatening a stir it has to be settled to the satisfaction of all. The government and the mining companies have also to settle the issue of demand for 90 per cent reservation by Sirsaim residents in mining companies and come out with an amicable solution before it becomes an issue throughout the state. Mining continues to be a very important industry to Goa, even though the situation in the present might not look very vibrant. With a ceiling imposed on ore production, the sustainability question has been settled, paving the way for resumption of mining. In order to make that happen, the government must play the role of a good mediator to solve the outstanding issues.
http://www.navhindtimes.in/roadblocks-to-full-resumption-of-mining/
Warm Regards
Anurag Singal
Sr Manager –Business Development
Essel Mining & Industries Ltd
14th Floor, Industry House
10,Camac Street –Kol-71
Ph: 033-30518415
The information contained in this electronic communication is intended solely for the individual(s) or entity to which it is addressed. It may contain proprietary, confidential and/or legally privileged information. Any review, retransmission, dissemination, printing, copying or other use of, or taking any action in reliance on the contents of this information by person(s) or entities other than the intended recipient is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us by responding to this email or telephone and immediately and permanently delete all copies of this message and any attachments from your system(s). The contents of this message do not necessarily represent the views or policies of Aditya Birla Group. Computer viruses can be transmitted via email. Aditya Birla Group Companies attempts to sweep e-mails and attachments for viruses, it does not guarantee that either are virus free. The recipient should check this email and any attachments for the presence of viruses. Aditya Birla Group does not accept any liability for any damage sustained as a result of viruses.
No comments:
Post a Comment