Are Chinese steel margins on the way back up?

Sliding and eventually negative steel margins in June led many analysts to the conclusion that high prices for iron ore would slide rapidly in the second half of the year as steel producers looked to cut costs.

That came on top of apparent efforts from the Chinese Government to curb steel, iron ore and later coal prices.

According to Reuters, Dalian Iron Ore futures suffered their biggest drop in 17 months on Friday on the back of concerns about steel production cuts which have weighed on sentiment.

But they recovered Monday as margins rose, with Navigate Commodities’ Atilla Widnell telling Reuters “there certainly isn’t sufficient supply availability from the seaborne market to feed Chinese steel consumption growth in the second half, particularly for long products.”

Chinese steel production remained strong in June despite falling from levels of almost 100Mt in May, with the 93.9Mt produced last month 1.5% above 2021 levels.

The 563.3Mt produced from January through June was 11.8% higher than the first six months of 2020, a record year for Chinese steel production.

“The elevated rate of China’s daily crude steel output indicates end user steel demand in China is still robust,” CBA analyst Vivek Dhar said.

Prices of iron ore have come off around US$20/t over the past week but remain at bull market levels with benchmark 62% fines rising US$1.41 to US$202.74/t Monday, according to Fastmarkets.

 

Strong steel demand lifts BlueScope to record earnings

Steel markets are also recovering strongly outside China.

“Crude steel production from the rest of the world lifted 28%/yr last month,” Dhar said.

“And in a sign that steel markets are genuinely recovering outside China, crude steel production rose 3% relative to June 2019.

“That’s the second consecutive month of positive growth recorded so far this year relative to 2019.”

Australia’s BlueScope Steel (ASX:BSL) is set to report its best earnings result in its 19 year history, something it attributed to both increasing US Midwest hot rolled coil steel prices and economic recovery in Australia and New Zealand.

BlueScope yesterday said it expected underlying EBIT for 2020-21 to be $1.72 billion, with a second half contribution of $1.19b, outstripping guidance of $1-1.08b.

“This is an outstanding result – our best underlying EBIT performance since demerger in 2002. The business has gone from strength to strength in the second half of FY2021 and all operating segments have delivered significantly better results than FY2020,” BlueScope managing director Mark Vassella said.

“The results reflect the positive macroeconomic environment with strong demand for our products, and the quality of our diverse portfolio.”

BlueScope is up 100% over the past year to a market cap of more than $12b.

 

 

BlueScope Steel share price today:

 

 

 

Steel stocks shine globally

While the steel industry is dominated by China, the strength of the steel sector internationally has given some people within the industry confidence the outlook generally for steel and iron ore is robust.

“The markets are to some extent disconnected, in other words iron ore can be profitable and steel can be unprofitable and vice versa,” Magnetite Mines technical director and iron ore market expert Mark Eames said.

“It will be an interesting thing to watch but if you take an example of what’s been happening, a lot of the best performing share classes in New York at the moment are the US steel producers.

“If I take NuCor for example, their shares would typically be around $60, they recently peaked at around $110.

“Certainly we’re seeing evidence around the world that the share prices of steel companies have been very strong.”

Eames said steel demand and profitability had a longer term impact on iron ore demand.

“There’s quite a strong outlook for many of the steel companies around the world. I agree steel margins in China have come back a little bit, but globally steel is still having one of its best years ever,” he said.

“You don’t need a booming steel market for iron ore producers to be successful, because they’re different markets, but obviously it’s better if you’ve got a booming steel market, that implies there’s going to be longer term demand for steel and therefore iron ore.”

Dhar believes the longer term challenge will be supplying iron ore into a steel sector in China, Japan and Korea that needs to decarbonise as 2050 net zero targets approach.

“Reducing emissions in the steel sector will first likely see a stronger preference for high grade iron ore and for products like iron ore lump and pellets,” he said.

“We’re also likely to see steel mills in these countries use more scrap steel.

“Moving steel production to a carbon free process is still a significant challenge. Carbon free hydrogen and molten oxide electrolysis have emerged as the front runners from the technology side.

“However, we’d need to wait until much later this decade to know (whether) a carbon free pathway for steel is technically and economically viable.”

 

Fe Limited signs Glencore deal

 

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
FEL Fe Limited 0.105 18 114 78 650 $ 76,993,952.64
RLC Reedy Lagoon Corp. 0.018 13 13 -14 157 $ 7,990,444.82
TLM Talisman Mining 0.2 11 -5 108 54 $ 37,325,677.00
CZR CZR Resources Ltd 0.0125 9 19 -17 -11 $ 35,479,990.45
BCK Brockman Mining Ltd 0.04 8 3 -29 122 $ 352,610,820.98
RHI Red Hill Iron 1.2 8 22 200 650 $ 64,668,400.92
GRR Grange Resources. 0.865 7 53 134 220 $ 995,311,280.28
CAP Carpentaria Resource 0.175 6 11 263 674 $ 83,142,576.26
VMS Venture Minerals 0.1325 6 2 92 249 $ 179,506,703.21
MGX Mount Gibson Iron 0.985 6 5 1 33 $ 1,152,340,869.66
CIA Champion Iron Ltd 7.12 6 7 25 161 $ 3,539,848,986.36
BHP BHP Group Limited 53.39 6 11 15 44 $ 152,919,145,862.54
RIO Rio Tinto Limited 132.375 4 6 9 29 $ 48,298,941,603.54
MIN Mineral Resources. 61.35 4 21 58 152 $ 11,845,070,230.32
FMG Fortescue Metals Grp 25.835 2 13 2 59 $ 78,267,288,215.56
HAV Havilah Resources 0.21 0 -9 -11 50 $ 61,255,445.60
JNO Juno 0.23 0 24 $ 31,201,340.23
ACS Accent Resources NL 0.051 0 2 155 920 $ 23,767,391.43
MGT Magnetite Mines 0.044 0 -44 110 2298 $ 138,261,901.45
LCY Legacy Iron Ore 0.016 0 14 -52 220 $ 96,071,077.76
FMS Flinders Mines Ltd 0.95 0 8 -21 31 $ 160,406,148.15
ADY Admiralty Resources. 0.018 0 6 20 157 $ 23,464,424.75
GWR GWR Group Ltd 0.385 -1 25 0 471 $ 112,030,983.91
AKO Akora Resources 0.25 -2 4 -47 $ 12,806,400.00
MAG Magmatic Resrce Ltd 0.145 -3 12 -9 -48 $ 31,850,567.76
TI1 Tombador Iron 0.086 -7 -3 4 309 $ 86,551,695.59
SRN Surefire Rescs NL 0.014 -7 -13 -42 133 $ 14,218,235.33
FEX Fenix Resources Ltd 0.395 -7 20 52 420 $ 188,885,568.00
DRE Drednought Resources 0.0425 -8 63 93 286 $ 113,844,837.48
HAW Hawthorn Resources 0.047 -8 0 -57 -57 $ 15,341,718.20
IRD Iron Road Ltd 0.25 -9 -6 -9 260 $ 202,031,216.40
GEN Genmin 0.185 -10 -12 $ 54,997,380.75
SRK Strike Resources 0.275 -10 17 8 317 $ 75,600,000.00
MGU Magnum Mining & Exp 0.155 -11 7 121 370 $ 80,061,214.70
SHH Shree Minerals Ltd 0.013 -13 8 -32 117 $ 13,822,079.60
MIO Macarthur Minerals 0.515 -14 29 3 158 $ 76,770,953.58
MDX Mindax Limited 0.06 -15 -24 1900 1900 $ 123,613,695.15
EFE Eastern Iron 0.015 -17 7 34 130 $ 11,923,708.22

Tony Sage’s Fe Limited (ASX:FEL) has secured an offtake deal for its lump ore at its JWD iron ore mine near Wiluna with global trading giant Glencore.

As part of the deal Glencore will provide a US$7.5 million prepayment to Fe to provide working capital for the mine’s ramp up, with sales occurring Free on Board, meaning Fe will not be exposed to the cost of freight.

“We are pleased to have secured a major company such as Glencore as our offtake partner for JWD,” Fe chairman Sage said.

“It is a great vote of confidence in our project and the team, particularly given they have been willing to make a prepayment.

“The prepayment facility will provide us valuable liquidity as we ramp up our operations to full capacity.”

The prepayment will be paid back over the course of the second through sixth shipments from the mine through Geraldton Port.

$75 million-capped Fe was the top performing stock over the past week on the Bulk Buys list with an 18% gain.

 

 

Fe Limited share price today:

 

 

 

Stanmore secures Isaac Downs lease

 

ASX coal 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
CKA Cokal Ltd 0.1 25 69 23 122 $ 97,081,142.87
CRN Coronado Global Res 1.015 12 21 -17 20 $ 1,693,218,267.30
NHC New Hope Corporation 1.9625 6 15 37 40 $ 1,618,934,524.49
SMR Stanmore Resources 0.705 5 -3 -16 10 $ 194,692,565.52
WHC Whitehaven Coal 2.235 5 14 41 49 $ 2,323,449,522.00
NCZ New Century Resource 0.23 5 10 2 18 $ 272,233,810.35
BCB Bowen Coal Limited 0.07 3 -4 56 32 $ 67,513,896.08
AKM Aspire Mining Ltd 0.075 1 1 -29 -6 $ 36,042,225.94
MCM Mc Mining Ltd 0.115 0 15 -21 10 $ 17,758,248.83
TER Terracom Ltd 0.135 0 23 -10 -10 $ 101,737,030.05
JAL Jameson Resources 0.115 0 35 5 -18 $ 34,883,167.35
PAK Pacific American Hld 0.017 0 -23 -29 89 $ 5,415,943.30
YAL Yancoal Aust Ltd 2.07 -2 2 -13 1 $ 2,720,105,240.22
AHQ Allegiance Coal Ltd 0.7 -4 4 75 100 $ 205,914,445.63
MR1 Montem Resources 0.045 -6 45 -81 $ 8,054,118.35
PDZ Prairie Mining Ltd 0.24 -8 -6 -4 -20 $ 59,372,323.14
NAE New Age Exploration 0.012 -8 0 -14 71 $ 18,569,185.83
ATU Atrum Coal Ltd 0.058 -8 115 -77 -76 $ 33,752,035.87
TIG Tigers Realm Coal 0.0085 -15 6 -15 10 $ 111,066,970.13
LNY Laneway Res Ltd 0.005 -17 25 -33 -38 $ 19,520,329.67
BRL Bathurst Res Ltd. 0.65 -17 55 18 30 $ 119,666,136.10

Stanmore Resources (ASX:SMR) will begin work late this month on the $82 million development of the Isaac Downs coal mine in Queensland after its mining leases were approved by the State Government.

The open cut mine at the Isaac Plains Complex near Moranbah will produce around 2.5Mtpa of coking coal over a mine life of 10 years.

About $47 million will be spent initially to establish the project, with dragline operations to start late January next year. Final construction will be complete during the first half of 2022.

Stanmore’s major shareholder, Singapore’s Golden Energy and Resources, is providing a loan to help fund the development.

Production has been sliding at Isaac Plains with coal sales dropping 44% QoQ in the June Quarter to 293,000t from 523,000t in the March Quarter.

Saleable coal production was down 11% QoQ and 24% YoY to 379,000t.

Stanmore expects to return to its 2.4Mtpa capacity as Isaac Downs ramps up, enabling it to take advantage of more favourable coking coal pricing.

Australian hard coking coal prices were up US$1/t end of last week to US$181.91 per tonne, with premium hard coking coal FOB Dalrymple Bay fetching US$215.06.

 

 

Stanmore Resources share price today:

 

 

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