Iron Ore Prices Outlook: BHP, RIO, Vale
Thursday, 17 May 2012 | 11:00
China central bank on Saturday cut the amount of cash that banks must hold as reserves, freeing an estimated CNY 400 billion for lending to head-off the risk of a sudden slowdown in the world’s second-largest economy.
Outside of this ASEAN and India have seen accelerating growth rates and Economist Shayne Heffernan and Iron Ore Industry veteran has said Iron Ore and Iron Ore Equities are a buy as they continue to fall.
ASEAN, India, Africa and other emerging markets will soak up any fall in China demand, he said.
Iron ore shipments account for around a third of seaborne volumes on the larger capesizes and brokers said price developments remained a key factor for dry freight. The Baltic panamax index fell 1.74% with average daily earnings down USD 189 at USD 10,361.
BHP Billiton said it expects commodity markets to cool further and that investors have lost confidence in the longer-term health of the global economy, in the most cautious comments yet from the world’s biggest miner.
BHP also put the brakes on a plan announced by Chief Executive Marius Kloppers in 2011 to spend $80 billion over five years to expand its iron ore, coal, energy and base metals divisions, banking on continuing high demand from its main market, China.
“It is all about appropriate allocation of capital. When Marius (Kloppers) talked about the $80 billion, the environment was different,” Chairman Jacques Nasser told reporters after a Sydney business lunch on Wednesday.
“We should pause, take a deep breath and wait and see where the pieces fall around the world,” he said, stopping short of announcing a spending cut.
The company was re-thinking its expansion plans “every day,” Nasser said.
Asked if BHP would spend $80 billion over five years, he replied: “No.”
While BHP Billiton continues to expect Chinese crude steel production to reach 1.1-billion tons a year by 2025, Kloppers emphasises that this equates to a lower 650-million-tons-a-year rate of growth in the demand for global seaborne iron-ore, which is well down on the 800-million tons a year of the last ten years.
Kloppers, who addressed a Bank of America Merrill Lynch conference in the US, says that the outlook for China’s iron-ore demand growth is lower in both percentage and absolute terms.
Companies like BHP Billiton and others with ongoing iron-ore investment programmes need to take into account the reality that supply will in due course meet demand and change the pricing mechanisms and regimes.
Longer term, beyond 2025, the combination of a plateau in steel use in China and increasing availability of ferrous scrap is likely to result in a protracted period of low-to-negative growth for the seaborne iron-ore market.
Therefore, low-cost seaborne iron-ore will continue to displace higher-cost supply and prices will revert to marginal cash cost.
Stockpiles of imported iron ore at 25 of China’s major sea ports rose to 97.82-M tons, + 60,000 tons from a week earlier.
There were no signs of a big recovery in domestic steel demand. Large steel mills further cut ex-factory prices in recent days, and steel prices slumped in spot markets and futures markets, Xinhua analysts said, adding that market turnover still retreated.
Imported iron ore prices dipped in the week ending 14 May due to waning demand, according to the Xinhua-China Iron Ore Price Index released Tuesday.
The price index for 63.5%-purity iron ore imports fell two points to hit 146 pts, while the price index for 58%-purity iron ore imports decreased 3 pts W-W to rest at 125 pts, according to the index, which is compiled by Xinhua News Agency to track iron ore inventories and imports in Chinese spot markets.
China’s daily crude steel output rose to a record high of 2.03-M tons in April, up 2% from the prior month, according to official data.
Import prices of iron ore are expected to trend downward in the near future, as demand will remain sluggish in May, according to Xinhua analysts.
Source: Live Trading News