• Iron ore price fall of almost 9% on Monday amid China’s Covid lockdowns
  • Mount Gibson Iron says 65% iron ore shipments are getting closer at its Koolan Island mine in WA, while Grange makes $200/t margin at Savage River
  • Coal miner Terracom reports record earnings for March quarter as coal prices soar

While the ASX slept on Monday, the iron ore price took a fall, led by lockdowns in China that threaten to crimp downstream demand for crude steel.

They came off a surprisingly high base, with iron ore shocking analysts to hold at more than US$150/t for much of the start of 2022.

According to Fastmarkets MB, prices for benchmark 62% iron ore fines on Monday dipped 8.97% to US$136.48/t.

China’s lockdowns have stimulated even more concern for its struggling property sector, the source of around 30% of its steel demand.

That portion of the economy has been key to China’s extraordinary economic growth over the course of the 21st century, but both new builds and home sales have tumbled early this year.

ANZ senior economist Adelaide Timbrell said construction activity in China is slowing.

“Investors are also reassessing impact of infrastructure investments on the property market. Property indicators are still negative, while construction activity is slowing due to lockdowns,” she said in a note.

 

So what’s weighing on China?

The big one is the lockdowns, which seem to have spread at a rapid pace as the rest of the world transitions to a clearer ‘living with Covid’ sort of lifestyle.

Parts of Beijing are now in lockdown, heaping further pressure on China’s domestic economy after lockdowns in the main steel trading and finance city of Shanghai and the steelmaking centre Tangshan.

The bearish news for steel demand came after more negative signals in the market for iron ore producers.

China’s state planner, the National Development and Reform Commission, announced crude steel output would be kept below 2021 levels, the second annual fall in two years.

While steel output has recovered on tepid numbers from late 2021 caused by Government enforced mill shutdowns, it is still down significantly year on year.

According to the World Steel Association, output fell 5.8% year on year in March around the world, with Chinese steel production dropping 6.4% YoY to 88Mt.

“That said, this was from a high base of comparison a year earlier and output is now higher than in H2 2021. The March figure was a slight surprise given the closure of steel mills in Tangshan and other COVID-19 related lockdown measures, but we now think that the impact will be seen in the April data,” Capital Economics commodities economist Luke Nickels said.

“Despite slower growth in the economy, we do not expect sufficient policy stimulus to give a lift to either steel demand or production this year.”

One positive for iron ore prices is the poor production numbers out of the miners so far this reporting season, which should quell fears the market is oversupplied.

Rio Tinto (ASX:RIO), BHP (ASX:BHP) and Vale all disappointed with weak output as wet weather and Covid cases hit productivity on their flagship minesites.

RBC analyst Tyler Broda said Rio was at risk of a guidance downgrade again after a poor first quarter.

 

Chinese steel fall could be different to 2021

Iron ore was a game of two halves in 2021, with Chinese steel production rising to its fastest rate in the first half, driving iron ore prices to a record US$233/t in May.

It then fell in the second half to US$87/t as crude steel production hit its lowest level in almost four years on Government mandated restrictions.

This year could be different, Commbank analyst Vivek Dhar says.

“China’s policy to cut steel output in H2 2021 saw iron ore prices plunge from $US233/t in mid‑May 2021 to a low of $US87/t in mid‑November. However, the policy to cut steel output last year came after China’s crude steel output surged ~12%/yr in H1 2021,” he said.

“The timing of this year’s announcement couldn’t be more different. China’s crude steel output has declined 10.5%/yr in Q1 2022.

“COVID‑19 restrictions are also set to spread, implying more weakness for China’s steel output and demand in coming weeks and months.

“In fact, it’s difficult to determine if China’s weaker steel output from COVID‑19 restrictions will play a more dominant role than the NDRC policy to reduce steel production in 2022.”

More weakness in iron ore prices came through yesterday, with Dalian futures down 4.2% in morning trade.

Iron ore equities tanked as well, with BHP, Rio and Fortescue (ASX:FMG), which is due to report its quarterly results on Thursday, all more than 5% lower yesterday morning.

That led the materials sector to a massive 4.96% loss early doors.

 

Mount Gibson & Grange report

Two of the most prominent junior iron ore miners on the ASX unleashed their production numbers for the March quarter yesterday.

The news flow was led by Grange Resources (ASX:GRR), which reported a big increase in pricing in the March quarter for the high grade magnetite concentrate from its Savage River mine in Tasmania.

Grange, which often attracts huge premiums over the benchmark 62% price, was paid US$224.30 ($307.72) FOB for every tonne it shipped in the March quarter compared to just US$164.14/t ($226.71/t) in the December quarter.

While its unit costs increased from $103.69/t to $104.24/t, Grange was still pulling in a margin of over $200 on each tonne of iron ore it shipped, something even the Pilbara majors couldn’t claim.

Grange, which delivered a pre-feasibility study outlining its expansion plans at the Southdown magnetite project in WA last month, saw sales of pellets drop however from 647,000t to 479,000t quarter on quarter due to maintenance.

Its concentrate production fell from 666,000t to 638,000t.

Grange has $356.93m in cash and $63.39m in trade receivables in the bank after paying a fully franked $115.73m dividend in March.

“The iron ore prices strengthened throughout the first quarter of 2022 from a period of weakness in the last quarter in 2021. This enabled the Company to maintain a strong cash position and the ability to declare a fully-franked final dividend of 10 cents per share,” Grange CEO Honglin Zhao said.

“We continue to see strong demand for our high-grade, low-impurity iron ore pellets.”

“The Southdown Magnetite Project pre-feasibility study was completed and the results announced during the quarter. Our team will further optimise the Southdown Magnetite Project as we continue to progress the Project in the definitive feasibility phase.

“Optimisation of our life-of-mine plan at Savage River is also progressing as planned. We will provide additional information on these two projects when the studies are completed.”

Meanwhile, Mount Gibson Iron (ASX:MGX) says it is poised to hit the comeback trail with pre-stripping at its Koolan Island iron ore mine almost complete.

Koolan Island is a super high grade hematite project in WA’s north, one of the few 65% DSO resources around.

MGX largely missed last year’s iron ore boom due to the renovations at Koolan Island, while it opened and quickly closed the low grade Shine mine in WA’s Mid West as price volatility and freight rates hammered the junior iron ore miners.

It says access to the high grade iron ore in the central and upper eastern zones of the main pit is now underway.

Ore sales totalled 0.24Mt at a grade of 62.8% in the March quarter, with ore grades to hit 65% by mid-2022.

MGX expects to ship 1.5Mt of ore from Koolan Island for the 2021-22 financial year.

“Cash draw also reduced in line with the significant reduction in the waste-to-ore stripping ratio, such that Koolan Island is now positioned on the cusp of its anticipated operational turnaround to generate strong cashflow from increased high-grade ore sales over the next five years,” MGX CEO Peter Kerr said.

“Mount Gibson’s ongoing operational improvement comes amid generally positive market conditions and outlook, particularly for higher-grade iron ore products, which gives the company confidence for the generation of substantial cashflows from Koolan Island over the next five years and the pursuit of new opportunities to grow the business.”

MGX has $92m cash and investments in hand, down from $142m on December 31 largely due to capital expenditure at Koolan Island.

 

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 0.06 3% 11% 9% 88% $ 27,961,636.98
ADY Admiralty Resources. 0.018 13% 6% 20% -18% $ 23,464,424.75
AKO Akora Resources 0.27 -14% -29% 17% -8% $ 18,285,770.70
BCK Brockman Mining Ltd 0.044 -8% -4% -4% -35% $ 436,123,910.16
BHP BHP Group Limited 45.66 -13% -8% 20% -4% $ 245,472,051,483.10
CIA Champion Iron Ltd 6.79 -14% -6% 42% 0% $ 3,864,256,832.48
CZR CZR Resources Ltd 0.016 0% 100% 100% 33% $ 55,781,172.43
DRE Dreadnought Resources Ltd 0.044 0% 10% 7% 144% $ 124,902,076.24
EFE Eastern Resources 0.047 -6% -10% -4% 358% $ 49,721,831.55
CUF Cufe Ltd 0.032 -3% -9% -6% -36% $ 31,634,208.05
FEX Fenix Resources Ltd 0.31 -2% 22% 32% -2% $ 175,512,732.80
FMG Fortescue Metals Grp 19.76 -9% 3% 36% -9% $ 65,335,635,559.96
FMS Flinders Mines Ltd 0.48 -7% -8% -45% -59% $ 89,489,745.81
GEN Genmin 0.195 -3% 0% 11% -26% $ 56,457,570.00
GRR Grange Resources. 1.26 -7% 17% 138% 146% $ 1,533,473,774.85
GWR GWR Group Ltd 0.16 3% 3% 3% -46% $ 53,000,748.08
HAV Havilah Resources 0.1875 -4% 7% -4% -11% $ 57,314,250.05
HAW Hawthorn Resources 0.165 27% 123% 230% 189% $ 51,694,920.02
HIO Hawsons Iron Ltd 0.55 11% 175% 624% 1172% $ 421,881,240.50
IRD Iron Road Ltd 0.18 -3% -5% -10% -25% $ 143,625,633.48
JNO Juno 0.12 -20% 25% -14% 0% $ 17,635,540.13
LCY Legacy Iron Ore 0.025 -19% 32% 92% 39% $ 179,391,133.57
MAG Magmatic Resrce Ltd 0.081 -8% -5% -13% -51% $ 21,631,377.83
MDX Mindax Limited 0.059 0% 0% 18% 1867% $ 112,672,163.12
MGT Magnetite Mines 0.031 -21% -5% 29% -49% $ 97,952,153.31
MGU Magnum Mining & Exp 0.081 -5% 5% 19% -55% $ 40,266,732.64
MGX Mount Gibson Iron 0.575 -13% -7% 28% -36% $ 792,922,061.62
MIN Mineral Resources. 54.67 -12% 12% 27% 19% $ 11,484,516,906.90
MIO Macarthur Minerals 0.45 -1% -22% 7% -6% $ 74,176,604.48
PFE Panteraminerals 0.16 -6% -6% -54% 0% $ 8,837,500.00
PLG Pearlgullironlimited 0.082 8% 12% -37% 0% $ 4,392,184.64
RHI Red Hill Iron 3.52 -2% 0% -13% 775% $ 226,589,928.95
RIO Rio Tinto Limited 108.76 -10% -7% 13% -10% $ 42,170,161,910.40
RLC Reedy Lagoon Corp. 0.032 -3% 3% 0% 45% $ 19,192,503.05
SHH Shree Minerals Ltd 0.013 -19% -28% 18% -24% $ 18,333,553.38
SRK Strike Resources 0.135 -10% 0% 17% -40% $ 37,125,000.00
SRN Surefire Rescs NL 0.031 55% 158% 107% 24% $ 33,898,287.27
TI1 Tombador Iron 0.041 -2% 0% 3% -44% $ 48,071,864.53
TLM Talisman Mining 0.17 -3% -6% 17% 17% $ 33,793,109.46
VMS Venture Minerals 0.057 -3% 36% 19% -20% $ 98,527,497.93
EQN Equinoxresources 0.175 -11% -3% -24% 0% $ 8,775,000.20

 

Terracom turns over record EBITDA

Coal junior Terracom (ASX:TER) has continued its turnaround story, reporting record EBITDA for the March quarter of $123 million.

That came as coal prices soared to record levels, with its Blair Athol mine generating $84.7m in EBITDA at a cash margin of $138 per tonne sold.

Terracom’s South African business contributed $38.5m, with an operating EBITDA margin of $22.3/t.

It puts Terracom in a position to pay dividends by the middle of this year, with just US$53.5m remaining on its Euroclear bond after US$86m of repayments to bondholders in the March quarter.

Once Terracom has received US$40m owed from a US$60m prepayment facility announced in February it will repay the bond in full, making the company debt free.

It expects to sell 2.3Mt for the financial year from Blair Athol and has sold 5.6Mt of coal all up year to date on an annualised basis, with a strong final quarter expected.

Pricing will remain strong as well. Terracom sells coal from Blair Athol to the Japanese and South Korean energy makets and the Indian sponge iron market.

It has eight cargoes forecast to deliver 650,000t in the June quarter with six linked to the Newcastle Coal index and two contracted at a fixed price of US$300/t on a 5500NAR basis.

Thermal coal is fetching around US$328/t after Newcastle coal futures hit a five-week high of US$331.10/t last Thursday.

Coking coal prices are also close to historic highs, with premium hard coking coal FOB Dalrymple Bay up US$28.04/t to US$480.71/t according to Fastmarkets on Monday.

 

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 0.013 -4% 0% 18% -35% $ 20,102,584.74
CKA Cokal Ltd 0.17 0% -6% -3% 158% $ 154,926,581.70
NCZ New Century Resource 2.07 -5% 9% -11% -27% $ 281,630,032.95
BCB Bowen Coal Limited 0.27 -19% 0% 42% 301% $ 463,668,610.36
LNY Laneway Res Ltd 0.005 -9% -17% 4% -13% $ 36,521,672.20
GRX Greenx Metals Ltd 0.19 -5% -3% -23% -26% $ 50,724,092.80
AKM Aspire Mining Ltd 0.09 -1% -5% -3% -2% $ 45,179,691.67
PAK Pacific American Hld 0.017 0% 0% 0% -17% $ 8,123,915.83
AHQ Allegiance Coal Ltd 0.56 3% 10% 14% -7% $ 228,044,781.90
YAL Yancoal Aust Ltd 4.95 -10% 4% 64% 130% $ 6,324,904,903.23
NHC New Hope Corporation 3.24 -9% -6% 45% 175% $ 2,763,425,512.24
TIG Tigers Realm Coal 0.015 -6% 7% -38% 114% $ 196,000,535.52
SMR Stanmore Resources 2.01 5% 14% 106% 218% $ 1,901,915,382.78
WHC Whitehaven Coal 4.4 -4% -2% 55% 233% $ 4,764,453,173.13
BRL Bathurst Res Ltd. 1.12 2% 5% 35% 220% $ 191,465,817.76
CRN Coronado Global Res 2.14 -9% 0% 53% 224% $ 3,755,256,355.20
JAL Jameson Resources 0.084 0% 5% -1% -27% $ 29,249,078.21
TER Terracom Ltd 0.565 -6% 15% 151% 489% $ 452,164,578.00
ATU Atrum Coal Ltd 0.013 -13% -7% -71% -76% $ 8,296,420.03
MCM Mc Mining Ltd 0.135 -18% 23% 8% -4% $ 30,845,354.24