A repeat of Aug 2012 - Spot iron ore and equities correct sharply: The
awaited iron ore price collapse (similar to what we saw in Aug 2012) has finally
come through with spot iron ore prices down to $113/T (~10% w/w fall) and
prices from the peak of $157/t of Feb-13 are down ~28%. The fall is similar in
quantum to the iron ore price collapse see in 2011 (fell 31% from a peak of
$192/T to $132/T) and 2012 (fell 30% from a level of $138/T to $99/T). The
only difference in 2013 v/s 2011 & 2012 is the pace of decline, with the 2013
correction actually spread over a relatively longer period of ~3 months
(admittedly most of the fall has taken in the last 45 days) while the 2011 &
2012 declines were over 1 month period. Surprisingly the Indian iron ore
equities like NMDC, TATA and SAIL have underperformed high beta iron ore
equity like Fortescue over the last 1 month when spot iron ore prices fell.
Interestingly the swaps iron ore market has stabilized for the time being.
Steel production cut news flow starts to pick up: As per the metals press
(SBB, MB, Bloomberg), Chinese mills are announcing steel production cuts.
While the production cuts are not large as of now, the announcements have
halted the spot HRC price correction. JPM China analyst Daniel KangAC in his
update highlights, ‘While steel inventories remain at high levels, absolute levels
are falling which signal that real demand is improving. This has resulted in
inventory days falling to 16.1 days in mid May from the peak of 21 days in
February. This month’s steel PMI suggests conditions are now “less bad” but
sentiment amongst mills and traders remain very weak’.
Price update: Global HRC export price continue to dip lower with CIS HRC
export prices at $545/T (~2% decline) while Chinese HRC prices are at $520/T.
Ferrous scrap prices have fallen in sync with iron ore prices and are down to
$325/T. Spot coking coal is down $140/T. Landed HRC steel prices in India
work out to Rs34K/T still at a premium to local prices as the INR depreciation
has pushed up import prices.
Met coal update from BHP analyst briefing: JPM Resource analyst Lyndon
FaganAC in his updates on BHP’s coal site tour of BHP highlights that ‘BHP
reiterated its sobering view on met coal prices, highlighting that since the GFC,
its demand forecasts have disappointed, and the supply side has surprised on the
upside. BHP’s forecasts assume: 1) seaborne met coal demand to grow at a
CAGR of 3.5% over the next 18yrs (global demand at 1.5% CAGR), 2) peak
steel production in China of 1.1Btpa by ~2025 (no change), 3) met coal
consumption will plateau before steel production in China peaks, and 4)
China’s scrap usage (scrap ratio to steel output) will top 40% in 2030, from
~12% in 2012. Overall, the company believes the market will be well supplied
with met coal over the near term, When asked whether BHP’s production
growth could lead to lower prices, management stated many producers in the
US were already loss making. In the event of a further downturn, management
believes these producers are likely to curtail production before any of BHP’s
QLD coal assets’.
JPM Global Metals outlook downgraded: JPM Global metals strategist Colin
Fenton has revised downwards the price forecasts for base metals on weaker
then expected demand growth and select improvement in supply outlook.
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awaited iron ore price collapse (similar to what we saw in Aug 2012) has finally
come through with spot iron ore prices down to $113/T (~10% w/w fall) and
prices from the peak of $157/t of Feb-13 are down ~28%. The fall is similar in
quantum to the iron ore price collapse see in 2011 (fell 31% from a peak of
$192/T to $132/T) and 2012 (fell 30% from a level of $138/T to $99/T). The
only difference in 2013 v/s 2011 & 2012 is the pace of decline, with the 2013
correction actually spread over a relatively longer period of ~3 months
(admittedly most of the fall has taken in the last 45 days) while the 2011 &
2012 declines were over 1 month period. Surprisingly the Indian iron ore
equities like NMDC, TATA and SAIL have underperformed high beta iron ore
equity like Fortescue over the last 1 month when spot iron ore prices fell.
Interestingly the swaps iron ore market has stabilized for the time being.
Steel production cut news flow starts to pick up: As per the metals press
(SBB, MB, Bloomberg), Chinese mills are announcing steel production cuts.
While the production cuts are not large as of now, the announcements have
halted the spot HRC price correction. JPM China analyst Daniel KangAC in his
update highlights, ‘While steel inventories remain at high levels, absolute levels
are falling which signal that real demand is improving. This has resulted in
inventory days falling to 16.1 days in mid May from the peak of 21 days in
February. This month’s steel PMI suggests conditions are now “less bad” but
sentiment amongst mills and traders remain very weak’.
Price update: Global HRC export price continue to dip lower with CIS HRC
export prices at $545/T (~2% decline) while Chinese HRC prices are at $520/T.
Ferrous scrap prices have fallen in sync with iron ore prices and are down to
$325/T. Spot coking coal is down $140/T. Landed HRC steel prices in India
work out to Rs34K/T still at a premium to local prices as the INR depreciation
has pushed up import prices.
Met coal update from BHP analyst briefing: JPM Resource analyst Lyndon
FaganAC in his updates on BHP’s coal site tour of BHP highlights that ‘BHP
reiterated its sobering view on met coal prices, highlighting that since the GFC,
its demand forecasts have disappointed, and the supply side has surprised on the
upside. BHP’s forecasts assume: 1) seaborne met coal demand to grow at a
CAGR of 3.5% over the next 18yrs (global demand at 1.5% CAGR), 2) peak
steel production in China of 1.1Btpa by ~2025 (no change), 3) met coal
consumption will plateau before steel production in China peaks, and 4)
China’s scrap usage (scrap ratio to steel output) will top 40% in 2030, from
~12% in 2012. Overall, the company believes the market will be well supplied
with met coal over the near term, When asked whether BHP’s production
growth could lead to lower prices, management stated many producers in the
US were already loss making. In the event of a further downturn, management
believes these producers are likely to curtail production before any of BHP’s
QLD coal assets’.
JPM Global Metals outlook downgraded: JPM Global metals strategist Colin
Fenton has revised downwards the price forecasts for base metals on weaker
then expected demand growth and select improvement in supply outlook.
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