Talking to ET, Jonathan Barratt, CIO, AyersAlliance, says we have seen a pickup in demand and it all comes down to actions of Beijing -- whether it is the infrastructure spends, environment or whether it is just acting on behalf of what G-20 wanted with them to do for reducing capacity. All of it has created a very strong market.
We have seen a 40% rise in the price of iron ore recently and a lot of the analysts suggested that it would not even get to this level but it has a lot to do with China.
Also, when you look at the current margins, the profit margins that the steel makers are actually making, we have seen a pickup in demand and at the end of the day, it all comes down to Beijing and that actions of Beijing whether it is the infrastructure spends, whether the environment or whether it is just sort of acting on behalf of what G-20 wanted with them to reduce capacity, all of it has created a very strong market and that will placate any dip that we actually see in the market which hopefully we will get soon because markets do not go in one direction.
At the end of the day when you look at the steel price and obviously and at the iron ore prices from Australia, you get a sense that the big producers, the Rio, the BHP, the Fortescue have all kept their production, in fact we have record numbers coming out of Port Hedland. The key at the moment is the fact that exports out of Port Hedland have come back a little bit but they may also look at the imports into China. They have come back a little bit but at the end of the day, it is too all quite supportive of the market even if we do get a dip.
At the end of the day when I look at the prices coming around US$ 75 dry ton, I can see some consolidation in the market, perhaps back to those early 60s, US$60 a dry ton but at the end of the day, they will get a lot of demand coming out of China and that should see prices back through 76 and may be even US$80. (Source: Economic Times)
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LAUNCESTON, Australia (Reuters) - China's surging steel sector is pulling iron ore along for the ride, but the strong gain in prices raises the risk that marginal supply of the raw material will start to flow into what is already a well-supplied market.
Steel prices in Shanghai received another boost on Monday on the back of an increase in China's Purchasing Managers' Index (PMI) for the sector, which climbed to 54.9 in July from 54.1 in June, marking the third consecutive month that the indicator was above the 50-level that demarcates expansion from contraction.
The steel PMI was also at its highest in 14 months, which helped boost benchmark Shanghai steel rebar futures to a close of 3,663 yuan ($545) a tonne, taking the year-to-date increase to almost 38 percent.
Strong demand for steel on the back of increased spending on infrastructure and housing construction have prompted China's mills to ramp up output to record monthly levels.
The positive steel story has ensured that iron ore has come along for the ride, with the spot price jumping 7.2 percent on Monday to end at $73.70 a tonne.
The steel-making ingredient has surged 38.1 percent since the low so far this year of $53.36 a tonne, reached on June 13.
China's domestic iron ore futures on the Dalian Commodity Exchange have also enjoyed strong gains, ending at 554.5 yuan a tonne on Monday, up 32 percent since the recent low of 420.5 yuan on June 14.
It's definitely possible to make a solid case as to why iron ore has ridden on the coattails of steel, starting with the historically strong correlation between the two.
The robust profitability of China's steel makers, with ANZ Bank estimating they are making a record $741 a tonne currently, has driven stronger imports of iron ore, and consequently higher prices.
But the rise in price is likely to result in a return to viability for iron ore mines that would not be profitable at prices closer to $50 a tonne, both inside and outside China.
While not all of this supply can be ramped up quickly, some can and there is evidence to suggest that this already starting to happen.
China's iron ore imports were up 9.3 percent at 539.3 million tonnes in the first six months of the year compared to the same period in 2016, according to official figures.
But imports from the main suppliers were not up by as much as the overall gain, with Australia rising 8.2 percent, Brazil 7.3 percent and South Africa just 2 percent.
Instead, much of the rise in imports by China came from non-traditional markets such as India, which was up a massive 151.5 percent, Iran with a 56-percent gain and Sierra Leone with a jump of 115.2 percent.
If iron ore's rally continues, it's likely that miners in those countries will look to produce more and ship it to China.
An executive from an Indian iron ore mining company told Reuters at a recent industry event that his company can export to China at any price above $70 a tonne, and if it reaches $80 they would "aggressively" pursue volumes.
The official, speaking on condition of anonymity as he wasn't authorized to talk to the media, said his company had delivered some cargoes to China in the first quarter, but had stopped when prices fell toward $50 a tonne.
But with prices above $70, his company can get back in the export game.
China's own mines also appear to be ramping up production, with output rising 5 percent in June from a year earlier to a 20-month high of 124.7 million tonnes, according to official figures.
It's worth noting that output was climbing even before the strong rally in prices that started only in mid-June, raising the risk that supply will increase at an even faster pace in coming months.
The other issue for iron ore is that supply from the last of the mega-mines developed over the last decade is likely to reach the market in the next few months.
The world's largest iron ore miner, Brazil's Vale, is in the process of ramping up output at its 90-million tonne a year S11D operation, while top exporter Australia will add tonnes to the market as the 55-million tonne a year Roy Hill mine reaches full capacity.
The addition of millions of new tonnes from Brazil and Australia, the return of marginal tonnes from minor producers, and the increase in China's domestic output should serve to put the brakes on iron ore's rally, even if steel continues to perform strongly.
However, it can still take several months for this to occur, meaning iron ore can stay at the steel party for now.
Steel clampdown: Workers at a Hangzhou Iron and Steel Group Co workshop in Hangzhou, Zhejiang province. According to the China Iron and Steel Association, all low-grade producers had been forced to cease operations. — Reuters
SHANGHAI: China shut 42.39 million tonnes of crude steel capacity in the first half of 2017, equal to 84% of its target for the whole year, a government official said at a meeting of the country’s steel industry body.
The country has essentially completed its five-year target, set last year, to cut between 100 million and 150 million tonnes of excess steel capacity within less than two years, said Xia Nong, an inspector with the National Development and Reform Commission, at the China Iron and Steel Association’s (CISA) annual meeting on Friday.
China made the pledge in January 2016 as it bid to put an end to a price-sapping capacity glut that had left the country’s massive steel sector mired in debt and losses.
The capacity cuts made this year do not include a nationwide campaign to shut down illegal low-grade steel production, believed to amount to around 100 million tonnes a year, which was completed by the end of June.
Jin Wei, CISA’s president, said that all low-grade producers in China had already been forced to cease operations, according to an account of the meeting published on CISA’s official website.
Jin also warned steel producers that despite rising output and improving steel product prices in the first half of the year, profits still remained relatively low and the sector was still struggling to make a sustained recovery, especially after a steep decline in export volumes.
Chinese steel production rose 4.6% in the first half of this year to 419.75 million tonnes, with production reaching a record monthly high in June, data from the National Bureau of Statistics (NBS) showed earlier this month.
Profits of the ferrous metal processing sector rose 1.1 times year-on-year in June, compared with 5.7% growth in May, due to the surge in steel prices and low comparison base, NBS data showed earlier this week. — Reuters
Ferrovanadium prices continued its bull run, putting on close to $10 on the week.
Platts assessed its weekly European ferrovanadium price on Thursday 27 July at $34-$41/kg from $27.50-$29/kg. This is close to a nine-year high prices were at $38-$43/kg November 8, 2008
Market participants said offers had reached $42/kg in Rotterdam on Thursday evening with a sale was reported at $39.80/kg duty unpaid Rotterdam.
Prices escalated as there was no material available for shipment from China and tight availability of material in Rotterdam. European trader sources said they had heard of a sale in China for 50% grade at $50 highlighting the severe global shortage.
"It's a chain reaction because nobody has stocks. You now can not replace material," he said. Sources agreed it was extremely difficult to buy 10 mt or 20 mt containers.
Others said they were now wary of concluding any business as the price had increased too quickly. "You need to find the emergency exit so if you need to run be the first," a second European trader said.
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BEIJING, July 10 (Reuters) - China's Jiangsu Shagang Co Ltd said on Monday it is expected to be the biggest shareholder of debt-strapped Dongbei Special Steel Group after a bankruptcy restructuring process.
Owned by the Liaoning provincial government in the country's "rustbelt" northeast, Dongbei entered into the bankruptcy restructuring process in October aimed at recovering a reported $10 billion in debt, and said it faces "uncertainties" about paying interest on medium-term notes in April.
Jiangsu Shagang, owner of China's largest private-owned steel mill, said one of its subsidiary is expected to become the biggest shareholder of Dongbei once the bankruptcy restructuring process is completed.
Jiangsu Shagang did not disclose further details of the investment.
Meanwhile, Bengang Steel Plates Co Ltd said on Monday it plans to invest 1.04 billion yuan ($152.88 million) in Dongbei, and this would account for 10 percent of Dongbei's registered assets after the restructuring process.
Also owned by Liaoning provincial government, Benxi Iron & Steel Group, the parent company of Bengang Steel Plates, was reported to be part of a merger with local rival Anshan Iron and Steel. The merger has been getting postponed for years.
"The company will export enterprise management experiences to Dongbei and its subsidiaries to help them recovery soon," said Bengang Steel Plates in the statement.