Iron ore looks set to smash through the $80 a tonne level for the first time in 26 months
Iron ore prices continued to rally on Friday, coming within a whisker of closing above the $80 a tonne level for the first time in 26 months.
And it looks like it may get there on Monday, at least based off a continued rally in futures markets.
According to Metal Bulletin, the spot price for benchmark 62% fines jumped by a further 3.5% to $79.61 a tonne on Friday, extending its four-day rally to an amazing 13.2%.
There were similar gains recorded for both lower and higher grade ores on Friday.
The benchmark price has now added 82.7% so far in 2016, and has risen 108% from the all time low of $38.30 a tonne struck on December 11 last year.
“It was more of the same today as steel mills continue to chase high grade fines, as well as material with low silica, while buoyant global commodities markets fuelled the on-shore futures,” said analysts at The Steel Index.
The rally also corresponded with the news that Chinese policymakers had managed to remove 88 million tonne of steelmaking capacity across the country in the nine months to September, close to double its initial target of 45 million tonnes for the year.
“Large-size Chinese steelmakers had phased out 40.75 million tonnes of production capacity up to September and reductions by smaller companies brought the total to 88 million tonnes,” said Reuters, citing remarks from Chinese Vice Premier Liu Yandong on Thursday.
Earlier this year, Chinese policymakers pledged to reduce annual steel making output by around 100 to 150 million tonnes before 2020.
Based off the figures presented, they have been more than successful in their attempts so far in 2016, clearing well over half of this figure in just nine months.
That news helped to spur on gains in steel prices, along with its raw ingredients, including iron ore.
And there’s no sign that the rally in Chinese commodity futures is slowing down with some enormous increases recorded on Friday evening, indicating that the benchmark iron ore spot price may move back above the $80 a tonne level for the first time since October 2014 on Monday.
The May 2017 iron ore future on the Dalian Commodities Exchange — now the most actively traded contract — rose by a further 2.68% to 612 yuan on Friday.
There were also similar gains recorded for coking coal, coke and rebar which rose by between 2.55% to 3.65% over the same period.
Rio marks the re-emergence of the miners
In the next two years we are going to have a mining profits boom of considerable magnitude.
Don’t be surprised to see the profits of some mining companies rise 50 to 100 per cent above their lows. Sometimes the rise will be even more.
I reached that conclusion as I was listening to the address by the chief executive of Rio Tinto Jean-Sébastien Jacques to some 700 mining, accounting, investment, legal and other executives at the Melbourne Mining Club last week.
Jean-Sébastien Jacques did not actually mention profit trends, so, to get the message, you had to listen very closely to what he was saying and combine that with the mood of the people at the function.
I think Rio Tinto understands what is happening in China better than any other large mining company. Its major shareholder is a big China state-owned enterprise and, of course, China is Rio Tinto’s main customer.
Jacques has spent a large part of his first year as CEO in China.
He told the Melbourne Mining Club that, given the politics of the country, it was virtually certain that it would meet its projected growth over the next two years. Assuming that is right, and there is no better source than Jacques, then commodity prices are going to remain strong unless China unleashes a tirade of local coal and iron ore production to flood the market.
But there is a second and perhaps even greater driver of profits.
Australian mining companies have slashed their costs by monumental amounts. That means profits are boosted two ways — better prices and lower costs.
Here Jacques gave a not too subtle warning to those in the audience. He underlined that important to longer term mining profits was not so much the fall in costs but the rise in productivity.
As I moved around the room, I discovered that a number of mining companies had cut costs in an unsustainable way, which means that the profit boosts in the next two years will fall away unless there is a price boom.
For example, in some mining companies, production workers were doing cleaning and other tasks that they will not do when profits rise.
Similarly, at the bottom of the market many suppliers cut their prices to unsustainable levels just to keep things going and hold onto market share.
But they are now bleeding and you could feel the under current in the room. Once it’s clear that profits are going through the roof, those prices will rise.
But where companies have looked hard at changing the way they conduct their mining and/or invested in better equipment, then the cost reductions will be sustained — or in the words of Jacques, productivity has been improved.
And when the big profits start rolling in, working out who has improved their productivity and who has simply reduced costs in an unsustainable way, will be the key to determining share prices.
Meanwhile, the rise in mining share prices is an indication that the market sniffs what is ahead but, to date, few analysts have fundamentally changed their predictions.
My guess is that after Jacques address, they will all be pondering whether to make a move. When one major analyst ups his or her profit forecast, the others will follow.
China to probe illegal expansion in coal, steel sectors
China will send inspection teams to investigate and severely punish illegal expansion by coal and steel firms as part of its efforts to slim down the two industries, the country's cabinet said on Thursday.
With most of the country's steel and coal enterprises making losses in 2015, China promised in February to slash 500 million tonnes of coal production capacity and 100 million to 150 million tonnes of crude steel capacity over the next three to five years in a bid to reduce price-sapping supply gluts.
The State Council said in a notice posted on China's official government website (www.gov.cn) that this year's targeted closures had already been "basically completed", but some firms were still illegally expanding capacity.
The cabinet named as culprits the Hebei Anfeng Steel Corp, based in the northern port city of Qinhuangdao, as well as a small steel plant in eastern China's Jiangsu province.
China has traditionally struggled to rein in its massive steel and coal sectors, with local governments often turning a blind eye to expansion projects that provide additional local employment and economic growth.
But this year Beijing been trying to keep its regions on a tighter leash, and inspection teams from the Ministry of Environmental Protection have criticized several provincial authorities for failing to restrict capacity growth in the two sectors.
The State Council statement said it will also encourage "high-quality firms" in the two sectors to step up restructuring efforts along the lines of the merger between the state-owned Baoshan Iron and Steel and Wuhan Iron and Steel groups.
It added that China would unveil financial incentives for regions currently trying to deal with overcapacity, and would provide more support when it comes to re-employing laid-off workers.
The notice summarized the proceedings of a regular Wednesday meeting held by Premier Li Keqiang, which also passed a draft law on reining in unfair competition.
http://www.reuters.com/article/us-china-steel-restructuring-idUSKBN13J11T
Iron ore dispatch from new Taldihi block begins in Odisha
THE opening of a fresh mine, Taldihi iron ore block under Barsuan Iron Mines (BIM), has come as a breather for SAIL and its stakeholders who had been incurring losses after the closure of Tensa iron ore mine in 2014.
The first rake of iron ore from Taldihi mine under raw materials division (RMD) of SAIL was flagged off from Barsuan Valley railway siding for Rourkela Steel Plant (RSP) on Saturday by RMD Executive Director Alok Shrivastav.
Among others, BIM general manager AK Pal; deputy general managers A Khare, BK Soren and PK Rath; assistant general manager PC Barua; senior manager JP Mishra; deputy manager PK Das and a host of stakeholders were present.
Sources in RMD said, in the wake of suspension of mining operations at Tensa iron mine from May 16, 2014 following a Supreme Court order, the RMD decided to develop the unused iron ore block at Taldihi to meet the shortfall in production.
Accordingly, contract was awarded to a private firm for one year to generate one million tonnes per annum (MTPA) from Taldihi block. Work started from May 11 this year with laying of approach road and mobilisation of machineries. Production of ore started recently.
The BIM has two lease hold areas. While one licence covers the iron mine at Tensa with two MTPA capacity, the other lease licence covers Barsuan railway dispatch point having machinery installations for processing of ores.
Owing to non-clearance of forest norms, the court order restricted operations at the dispatch point which is connected to Tensa mine through conveyor belt. Presently, the nearby Kalta iron mine of RMD produces 1.03 MTPA.
RMD sources said, status report on forest norms compliance has been submitted to Ministry of Forest and Environment and would be produced in the apex court shortly.
In the last 30 months, SAIL has suffered huge losses as it was paying about 370 regular workers and 400 contractual workers of BIM without any production. At one point of time, RMD was considering retrenching the contract workers, said RMD sources.
Meanwhile, HMS-affiliated Rourkela Mazdoor Sabha secretary Amiya Rout welcomed the opening of Taldihi mine and demanded RMD to ensure early resumption of works at Tensa mine.
Warm Regards
Anurag Singal
Sr Manager –Business Development
Essel Mining & Industries Ltd
14th Floor, Industry House
10,Camac Street –Kol-71
Ph: 033-30518415,9088026252
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