China’s steel output has shown signs of life, building throughout the first quarter of 2022 after collapsing to its slowest rate in four years in October and November 2021.

That came despite widespread curbs on mill output due to the Winter Olympics and Chinese New Year.

China turned out 243.4Mt of crude steel in the three months to March 31, down 10.5% on last year but only because steel output was absolutely raging back in early 2021.

Those numbers are much stronger than the end of 2021. The expectation China would increase production to lift its struggling economy later in the year has kept iron ore prices steady at elevated levels above US$150/t over the past month or so, having averaged a surprising US$141/t for the March quarter despite Covid lockdowns which have kept a lid on downstream steel demand.

The Communist Party doesn’t like that for a few reasons. The Producer Price Index was up a massive 8.3% in March after an 8.8% rise in February, while CPI rose just 1.5%.

That means bulk commodity prices for things like iron ore, gas, coal and oil are hitting Chinese companies hard right now. At the same time relations between China and Australia’s Morrison Government have been frosty for the past two years, a situation which has seen China reject billions of dollars in Australian produce.

Enter China’s powerful National Development and Reform Commission, which said yesterday it encouraged a drop in crude steel output for a second straight year after a 30Mt drop from 2020’s record 1.065Bt to 1.035Bt in 2021.

That was the same pledge that caused iron ore prices to dissipate in the back half of 2021 as China put the clamps down on steel factories on environmental grounds.

Call us cynical, but limiting emissions is likely to be low down the list of reasons for China to put a ceiling on steel production.

China after all produced a record 395Mt of coal in March, in line with estimates from analysts that it could blast its production records for the world’s ‘dirtiest’ commodity out of the water this year.

The impact was virtually immediate on futures, with Dalian iron ore down 2.5% and Singapore off 2.11% to US$151.60/t.

Other signs of weakness in steel demand however could be harbingers of worse to come, especially from China’s subdued property market.

China’s apparent consumption of crude steel declined 3.8% on the year to 72.29Mt, S&P Global said, with property sales down 26.1% YoY in March and new housing starts off 22.3% amid the Covid outbreaks.

 

Analysts weigh in on BHP and Rio quarterlies

The big dogs are set to release their quarterly results starting with Rio Tinto (ASX:RIO) this morning and BHP (ASX:BHP) tomorrow.

Analysts have weighed in on what they expect ahead of the releases, which give a brief glimpse into the operations of companies that tend to keep the comings and goings of their businesses close to their chests.

RBC Europe analyst Tyler Broda says he expects a weak quarter from Rio based on shipping data, with an implied run rate of 292Mt well short of its 320-335Mt guidance.

Rio officially shipped 322Mt last year, making it the world’s most prolific trader of iron ore on the seaborne market ahead of Brazil’s stuttering Vale.

But that was below the lower end of its original guidance of 325-340Mt, and Rio has routinely failed to hit its ambitious production targets despite efforts to increase its output long-term to 360Mt by developing delayed Pilbara replacement projects like the Gudai-Darri mine.

Broda says data suggests Rio is continuing to struggle at its flagship Pilbara iron ore operations.

“Rio Tinto continues to suffer capacity impacts from changes to its mine plans post Juukan Gorge and port data suggests that the COVID-19 impacts on Western Australia compounded the problem in Q1,” he said in a note to clients.

“We expect RIO to report shipments of 73.1mt, well short of VA consensus of 76.6mt and implying a run rate of only 292mt for the full year (guidance 320-335mt, RBCE 328mt).

“In Rio’s defence, Q1 has, on average, traditionally operated at a 10% lower rate than in H2 but this start will not help.

The higher price environment meant a larger portion of Rio’s product blend may have been lower grade SP10, which receives discounts to the benchmark price.

“We believe concerns around productivity in RIO’s largest profit driver will persist through the year, especially as cost inflation picks up,” Broda said.

Investors could be on the lookout for updates on its growth projects at Rincon (lithium), Oyu Tolgoi (copper-gold) and Simandou, the stop-start high grade iron ore mine in Guinea that Rio Tinto wants to make an investment decision on this year.

 

BHP weaker too

BHP is also expected to post weaker shipping numbers for the quarter, with Broda reducing RBC’s production forecst by 1.1% to 67.5Mt on a 100% basis, 2% lower than consensus of 69.3Mt.

That is around a 270Mtpa rate, below BHP’s 278-288Mt FY22 guidance, but still on track after a strong first half.

However, BHP is diversified across iron ore, coal, copper and nickel, as well as in the petroleum business it is merging with Woodside, and higher prices should deliver massive improvements in earnings on initial forecasts.

“With met coal prices staying elevated, and iron ore continuing to stay strong for now, BHP remains in a strong position,” Broda et. al. said.

“We continue to see BHP at 1.43x NAV as fairly valued relative to its global peers.”

Among the other major iron ore miners, Fortescue Metals Group (ASX:FMG) reports next week and RBC is expecting a strong quarter of shipments with pricing discounts for its lower grade product that became stark in the December quarter also reducing.

They are also on the lookout for an update on the US$3.5b Iron Bridge magnetite mine due to enter production by the end of 2022.

Meanwhile, Goldman Sachs has put a big buy rating on Mineral Resources and lifted its price target by 42% to $70.80 a share, saying increased prices and volumes in its lithium and iron ore businesses could deliver $2 billion in EBITDA in FY23 and upwards of $3b at current spot prices.

 

Iron ore majors share prices today:


 

 

ASX iron ore stocks

Scroll or swipe to reveal table. Click headings to sort.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.058 -3% 4% 5% 45% $ 27,029,582.41
ADY Admiralty Resources. 0.016 -6% -11% -11% -27% $ 20,857,266.45
AKO Akora Resources 0.3 -13% -19% 43% -14% $ 19,200,059.24
BCK Brockman Mining Ltd 0.048 12% 2% 17% 66% $ 445,403,142.29
BHP BHP Group Limited 53.17 3% 15% 36% 12% $ 265,771,967,475.00
CIA Champion Iron Ltd 7.88 4% 14% 65% 25% $ 4,060,569,345.36
CZR CZR Resources Ltd 0.018 125% 140% 112% 38% $ 55,781,172.43
DRE Dreadnought Resources Ltd 0.043 0% 8% 19% 126% $ 124,902,076.24
EFE Eastern Resources 0.049 -6% 0% 23% 338% $ 49,721,831.55
CUF Cufe Ltd 0.033 0% 0% -8% -25% $ 31,634,208.05
FEX Fenix Resources Ltd 0.34 17% 39% 39% 19% $ 162,607,384.80
FMG Fortescue Metals Grp 21.73 3% 17% 47% 4% $ 66,536,431,877.98
FMS Flinders Mines Ltd 0.5 0% -2% -41% -62% $ 86,957,017.16
GEN Genmin 0.2 14% 11% 3% -26% $ 56,457,570.00
GRR Grange Resources. 1.435 12% 41% 188% 204% $ 1,573,980,629.28
GWR GWR Group Ltd 0.165 6% 14% 0% -43% $ 49,788,581.53
HAV Havilah Resources 0.195 0% 8% 0% -3% $ 60,412,317.62
HAW Hawthorn Resources 0.155 35% 94% 187% 154% $ 43,357,029.69
HIO Hawsons Iron Ltd 0.555 34% 178% 603% 1245% $ 353,951,210.25
IRD Iron Road Ltd 0.185 -8% 6% -5% -29% $ 147,615,234.41
JNO Juno 0.14 8% 44% 22% 0% $ 20,348,700.15
LCY Legacy Iron Ore 0.031 11% 63% 100% 48% $ 198,611,612.17
MAG Magmatic Resrce Ltd 0.083 0% -13% -15% -39% $ 21,631,377.83
MDX Mindax Limited 0.059 0% 0% 18% 1867% $ 112,672,163.12
MGT Magnetite Mines 0.033 3% 6% 27% -55% $ 129,549,622.12
MGU Magnum Mining & Exp 0.089 3% 14% 35% -44% $ 42,255,213.26
MGX Mount Gibson Iron 0.68 5% 36% 51% -25% $ 798,974,901.78
MIN Mineral Resources. 61.66 4% 33% 42% 44% $ 11,714,378,588.33
MIO Macarthur Minerals 0.485 15% 18% 17% 1% $ 66,545,337.04
PFE Panteraminerals 0.18 6% 13% -47% 0% $ 8,585,000.00
PLG Pearlgullironlimited 0.083 0% 19% -41% 0% $ 4,172,575.41
RHI Red Hill Iron 3.52 1% -4% -8% 811% $ 229,781,336.40
RIO Rio Tinto Limited 121.66 4% 10% 20% 2% $ 44,746,402,435.56
RLC Reedy Lagoon Corp. 0.035 6% 30% 40% 59% $ 18,095,788.59
SHH Shree Minerals Ltd 0.015 0% -25% 36% -12% $ 18,944,671.83
SRK Strike Resources 0.145 12% 21% 16% -29% $ 40,500,000.00
SRN Surefire Rescs NL 0.024 50% 85% 60% -11% $ 22,598,858.18
TI1 Tombador Iron 0.044 22% 13% 5% -44% $ 46,953,914.20
TLM Talisman Mining 0.175 3% 0% 21% 25% $ 32,854,411.98
VMS Venture Minerals 0.061 2% 56% 22% -3% $ 98,527,497.93
EQN Equinoxresources 0.18 -12% -3% -28% 0% $ 8,887,500.20

 

 

IPA looks to make coal an election issue

The election race has begun and it is expected to be close.

That means the candidates are out to pander to the swingers, with Morrison pounding the pavement in WA where the Coalition wants to protect the seats of Hasluck, Pearce and Swan on Perth’s outer fringe.

There he fronted up with candidate for Swan Kristy McSweeney at a robotics factory to announce a major resources plan including two $70 million hydrogen hubs in Kwinana and the Pilbara, creating a definitely not imaginary figure of 3600 jobs.

The charm offensive in WA included a promise not to introduce a mining or carbon tax, two things sure to send the CME wild, which the visit indeed did.

Anthony Albanese was in Queensland simping to the coal industry, saying a Labor Government would give the green light to new mines in the Sunshine State after the issue sunk Bill Shorten’s opposition in 2019.

The venerable folk at the Institute of Public Affairs, famously the beneficiaries of Gina Rinehart’s largesse, congratulated both parties for their support of the coal sector.

They want it all to go a step further though, calling on both major parties to dump Net Zero altogether, calling it a “fringe policy”.

“Scrapping net zero is the single most important initiative which would secure the development of new coal projects, creating thousands of jobs, and securing Australia’s energy supply and defence capability in an increasingly hostile world,” said IPA reserch director Daniel Wild.

“The commitment of both major parties to the development of new coal mines means little in the absence of policies to enable new mines to go ahead, such as slashing red tape and scrapping the commitment to net zero emissions by 2050.”

Wake us up when this is all over.

 

MC Mining completes BFS on Makhado

South African coal miner MC Mining (ASX:MCM) was the big mover in the bulk commodities this week after releasing a bankable feasibility study into its Makhado mine.

MC Mining has a deal with global steel giant ArcelorMittal to supply coal hard coking coal from Makhado, which will produce 13.6Mt of hard coking coal and 11.9Mt of 5500kcal thermal coal over its 22-year mine life.

The ASX-listed junior says the mine will cost $41.7 million to build over a 12-year period, with a post tax IRR of 38.2% and NPV of $268.1m at long run coking coal prices of US$212.10/t and thermal coal prices of US$105.50/t.

Those commodities were fetching US$594/t and US$260/t respectively as of the end of March.
“The completion of the BFS reflects a key advancement of Makhado and confirms the project’s robust economics,” MC Mining interim CEO Sam Randazzo said.

“The BFS is based on the project plan with the lowest capital cost options and results in Makhado’s ROM coal being transported to the Vele Colliery for processing for the entire LOM.

“The forecast HCC and thermal coal prices used in the BFS were sourced from independent advisors and are considerably lower than current index prices, reflecting Makhado’s robust economics and significant upside. The BFS is a key milestone in securing the funding for Makhado.”

MC Mining sold 107,953t of met and thermal coal from its Uitkomst colliery in South Africa’s Kwazulu-Natal Province in the six months to December 31.

 

ASX coal stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.0145 4% 12% 32% -19% $ 19,384,635.29
CKA Cokal Ltd 0.17 0% 0% -8% 162% $ 159,621,326.60
NCZ New Century Resource 2.18 -1% 15% -6% -24% $ 284,249,847.21
BCB Bowen Coal Limited 0.325 5% 23% 59% 382% $ 509,275,358.92
LNY Laneway Res Ltd 0.005 -17% -17% 4% -13% $ 33,478,199.51
GRX Greenx Metals Ltd 0.2 0% -2% -25% -22% $ 50,724,092.80
AKM Aspire Mining Ltd 0.083 -10% -8% -21% -9% $ 46,194,965.64
PAK Pacific American Hld 0.017 0% 13% -6% -17% $ 8,123,915.83
AHQ Allegiance Coal Ltd 0.64 28% 28% 10% 2% $ 212,451,976.30
YAL Yancoal Aust Ltd 5.28 8% 25% 47% 132% $ 7,222,803,720.39
NHC New Hope Corporation 3.49 -9% 20% 40% 152% $ 2,963,191,211.92
TIG Tigers Realm Coal 0.015 0% 15% -44% 88% $ 209,067,237.89
SMR Stanmore Resources 1.94 12% 21% 81% 172% $ 1,730,652,860.16
WHC Whitehaven Coal 4.66 4% 17% 40% 213% $ 4,642,548,187.89
BRL Bathurst Res Ltd. 1.18 17% 22% 31% 188% $ 188,046,785.30
CRN Coronado Global Res 2.32 8% 17% 55% 187% $ 3,922,901,728.20
JAL Jameson Resources 0.084 -2% -1% -1% -14% $ 29,249,078.21
TER Terracom Ltd 0.605 10% 32% 195% 537% $ 452,164,578.00
ATU Atrum Coal Ltd 0.013 -7% 0% -74% -77% $ 10,370,525.04
MCM Mc Mining Ltd 0.165 57% 43% 32% 27% $ 31,809,271.56