• China’s state iron ore buyer seems to be costing its mills more money than it is saving them in price negotiations with miners
  • Reuters reports little has changed in the iron ore trade since the much-hyped introduction earlier this year of the China Mineral Resources Group
  • Europe shifts coal back to Asia as thermal prices continue to fall

China’s response to record iron ore prices a couple of years ago was swift and, it must be said, inconsistent with reality.

Driven primarily by a surge of Chinese Government stimulus that egged on steel hungry and over-leveraged property and infrastructure sectors, rebar prices surged and steel mills couldn’t get enough of our iron ore, paying big premiums for higher grades and lower impurities.

The response was to complain that traders had put the market out of whack with fundamentals and that the Aussie iron ore miners, far more concentrated in their sector than the more diffuse steel mills on the other side of the virtual conveyor belt between the Pilbara’s mines and Beijing’s ports, were wielding too much bargaining power.

The solution? A centralised owned iron ore buyer responsible for negotiating contracts with the large producers on behalf of the big State-owned steel companies.

The outcome has been much of a muchness.

China has been effective in recent years in bringing down iron ore prices, directly or inadvertently, by crimping demand.

In 2021 62% Fe iron ore fell from a record US$237/t to US$87/t in just six months when ‘environmental controls’ — a bit of a wink, wink, nudge, nudge phrase where the CCP are concerned — saw steel output fall from all time highs to multi-year monthly lows.

In 2022 a similar but less astounding run crumbled as Covid Zero and stifling steel mill losses resulted in reduced demand and lower production through the second half.

(Both years saw steel output in China, for only the second and third years ever, exceed 1Bt mind you.)

This year a run that sent iron ore above US$130/t was curbed by more concerns over the health of China’s property developers and falling steel prices.

But China’s official interventions continue to have little sway when it comes to market prices.

 

State owned buyer a blunt instrument?

That is at least according to reports from Reuters.

They say the introduction of China Mineral Resources Group, which is handling procurement for around 30 Chinese steel mills, has done little to shake the market thus far.

“We have not received any cheaper iron ore prices and to be honest I don’t expect they can get better deals any time soon,” a purchasing manager at a state-owned factory told reporters Muyu Xu and Naveen Thukral.

“CMRG looks like an updated version of a previous collective buyer agency.”

China accounts for somewhere in the order of 80% of Australian iron ore sales, a proportion that has been rising in recent years.

According to miners quoted anonymously by Reuters, they are talking with CMRG before negotiating contracts with Chinese steel mills but still signing individual supply contracts with steel producers.

One told the reporters there was no “market shaking change”.

“It’s hard to say if more Chinese firms will put their contract bargaining under CMRG in the future. That would mainly depend on what CMRG achieves,” an official at a “global mining company” was quoted as saying.

Mill owners are yet to see the ‘strength in numbers’ benefits from using a single agency of achieving lower prices, but are instead propping up the entity incurring extra costs with “fixed commissions”. Go figure.

Over in Singapore iron ore prices rose 2.65% to US$103.25/t by Monday afternoon, but fell back below US$100/t yesterday.

While only around a third of mills are profitable right now, blast furnace utilisation lifted 0.8% last week, according to MySteel, to 89.93% after maintenance campaigns in North China ended.

Lower coking coal prices have helped counter the impact of weak rebar prices and low steel demand.

The Friday and Monday run in iron ore prices, arresting a decline that saw prices drop below US$100/t for the first time in six months last week, appears to be centred on rumours of fiscal support for China’s construction industry.

“Iron ore futures in China rallied late last week following rumours that Beijing will release CNY5tn of special bonds to invigorate construction activity,” ANZ’s Felix Ryan said in a note on Monday.

“Nevertheless, it ended the week lower as a worse than expected construction season weighs on demand.”

 

ASX iron ore stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.01 0% 43% -60% -83% $ 4,731,272.83
ADY Admiralty Resources. 0.007 17% 17% -13% -50% $ 9,125,054.07
AKO Akora Resources 0.19 12% 3% 6% -21% $ 17,571,820.59
BCK Brockman Mining Ltd 0.033 3% 0% 43% -18% $ 296,967,428.19
BHP BHP Group Limited 43.49 -1% -2% -4% -3% $ 219,653,979,308.16
CIA Champion Iron Ltd 6.1 -2% -6% -4% -18% $ 3,165,221,931.12
CZR CZR Resources Ltd 0.165 0% -3% -37% -34% $ 40,074,889.82
DRE Dreadnought Resources Ltd 0.054 -10% -14% -46% 26% $ 183,025,052.10
EFE Eastern Resources 0.01 -9% -9% -70% -71% $ 13,661,411.07
CUF Cufe Ltd 0.013 8% -19% -7% -58% $ 11,593,348.38
FEX Fenix Resources Ltd 0.235 -2% -2% -2% -27% $ 137,278,051.20
FMG Fortescue Metals Grp 19.82 -3% -5% 2% 0% $ 61,148,243,271.48
FMS Flinders Mines Ltd 0.4 -13% -5% -13% -4% $ 67,539,430.80
GEN Genmin 0.15 0% -6% -27% -27% $ 67,692,485.10
GRR Grange Resources. 0.54 -1% -12% -29% -66% $ 619,176,203.43
GWR GWR Group Ltd 0.066 -3% -19% 6% -45% $ 21,200,299.23
HAV Havilah Resources 0.26 4% 0% -13% -2% $ 82,326,194.60
HAW Hawthorn Resources 0.092 31% 8% -23% -20% $ 28,476,327.11
HIO Hawsons Iron Ltd 0.038 -16% -25% -61% -93% $ 34,005,629.18
IRD Iron Road Ltd 0.081 -10% -26% -35% -52% $ 68,585,775.12
JNO Juno 0.073 1% -19% -22% -37% $ 9,767,376.07
LCY Legacy Iron Ore 0.016 14% 0% -16% -33% $ 89,695,566.79
MAG Magmatic Resrce Ltd 0.091 -24% -27% -3% 17% $ 39,740,063.74
MDX Mindax Limited 0.095 9% -51% 61% 61% $ 194,328,084.10
MGT Magnetite Mines 0.445 -1% -19% -44% -67% $ 34,885,576.14
MGU Magnum Mining & Exp 0.027 8% 42% 23% -48% $ 19,418,503.33
MGX Mount Gibson Iron 0.395 -6% -17% -14% -43% $ 485,767,733.20
MIN Mineral Resources. 72.42 -2% -2% -17% 16% $ 13,839,938,238.00
MIO Macarthur Minerals 0.155 3% -9% 24% -52% $ 25,676,290.64
PFE Panteraminerals 0.072 -10% -15% -35% -42% $ 3,708,080.64
PLG Pearlgullironlimited 0.03 0% 0% 71% -2% $ 4,692,487.14
RHI Red Hill Minerals 4.22 -5% -8% 3% 25% $ 299,992,300.30
RIO Rio Tinto Limited 109.3 0% -3% 0% -4% $ 40,499,688,947.40
RLC Reedy Lagoon Corp. 0.006 0% -14% -45% -78% $ 3,400,317.61
CTN Catalina Resources 0.004 0% 0% -50% -62% $ 4,953,947.57
SRK Strike Resources 0.066 -12% 22% -30% -63% $ 18,727,500.00
SRN Surefire Rescs NL 0.017 -11% 0% 36% -54% $ 28,464,542.59
TI1 Tombador Iron 0.022 5% -12% 0% -33% $ 42,739,647.46
TLM Talisman Mining 0.19 -5% 31% 46% 3% $ 36,609,201.92
VMS Venture Minerals 0.016 -20% -16% -36% -62% $ 32,420,166.03
EQN Equinoxresources 0.13 -7% 0% 0% -26% $ 5,850,000.13
AMD Arrow Minerals 0.0035 -22% -22% -22% 0% $ 12,095,060.38
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Thermal coal continues to fall

Iron ore prices may be just about holding up against a wave of negative demand-side pressure.

But thermal coal is continuing to fall, with front month futures down to US$140.65/t for Newcastle 6000kcal product as of Monday.

While still in profitable territory for most miners, the commodity is now less than a third of its late 2022 highs, when a ban on Russian coal in Europe and supply crunch sent them beyond US$450/t.

Despite predictions it would stay higher for longer, thermal coal has lost its superhuman sheen in 2023.

Coking coal is still strong at US$230/t, though that is down from highs of as much as US$670/t in the immediate aftermath of Russia’s invasion of Ukraine last year.

According to S&P Global, European buyers who sent coal prices soaring last year are now looking to sell stockpiled coal into a weak Asian market amid lower than expected gas prices following a mild winter and high renewable output.

“Europe has overstocked about 20 million mt of coal so there’s no demand now but seems like that will ease over the next five months and prices will likely rebound then,” a South Africa-based trader reportedly told S&P.

 

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 0.006 20% 20% -33% -40% $ 8,615,393.46
CKA Cokal Ltd 0.13 -7% -10% -32% -10% $ 145,658,112.30
BCB Bowen Coal Limited 0.23 7% -8% -21% -35% $ 414,420,345.68
SVG Savannah Goldfields 0.15 3% -14% -14% -25% $ 28,398,023.51
GRX Greenx Metals Ltd 0.76 -3% -1% 43% 334% $ 203,432,573.64
AKM Aspire Mining Ltd 0.056 6% -5% -28% -36% $ 28,935,308.15
AVM Advance Metals Ltd 0.008 14% -11% -38% -38% $ 4,708,469.81
AHQ Allegiance Coal Ltd 0.013 0% 0% -73% -97% $ 13,063,647.08
YAL Yancoal Aust Ltd 4.76 -8% -14% -16% -15% $ 6,338,109,297.60
NHC New Hope Corporation 4.81 -10% -9% -19% 34% $ 4,279,006,963.45
TIG Tigers Realm Coal 0.007 0% 17% -42% -65% $ 104,533,618.94
SMR Stanmore Resources 2.64 -4% -13% -3% 0% $ 2,379,673,913.76
WHC Whitehaven Coal 6.05 -12% -16% -40% 19% $ 5,353,745,588.67
BRL Bathurst Res Ltd. 0.92 -7% -10% 24% -32% $ 177,964,595.40
CRN Coronado Global Res 1.365 -5% -17% -35% -28% $ 2,296,741,610.10
JAL Jameson Resources 0.075 0% 7% -35% 0% $ 29,363,332.50
TER Terracom Ltd 0.515 -18% -20% -40% -32% $ 404,487,948.68
ATU Atrum Coal Ltd 0.005 0% 0% -29% -45% $ 6,958,495.86
MCM Mc Mining Ltd 0.17 0% -17% -26% 59% $ 67,943,084.34
DBI Dalrymple Bay 2.6 0% 2% 6% 27% $ 1,279,065,100.86
AQC Auspaccoal Ltd 0.16 -9% 0% -38% 7% $ 52,096,642.95
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