Bulk Buys: Iron ore price supported by rising steel demand, coking coal prices slip on lower exports
Link copied to
Better Chinese steel prices have allowed iron ore prices to float higher this week and they appear well supported by rising steel production in the Asian nation.
Cargoes of 62 per cent-grade iron ore for delivery to China are trading at $US174.55 per tonne ($229.65/tonne) this week, according to Metal Bulletin.
“Iron ore futures have been supported in recent weeks by stronger steel prices, as authorities look to curb output to contain emissions,” said analysts at ANZ Bank in a report.
But they went on to stress that China’s government may intervene in the market to dampen inflation which is feeding through to higher producer prices.
“However, traders may be concerned by moves from authorities to strengthen controls on raw material prices, which has been pushed by inflation concerns,” said ANZ Bank.
Shipments from WA’s main iron ore hub soared in March after a slight dip in February, as Chinese steel production increased after traditional Lunar New Year festivities.
“Exports from Port Hedland rebounded to 46.7 million tonnes last month, from a near two-year low in February. Shipments to China were up 24 per cent month on month to 38.1 million tonnes,” said ANZ Bank.
Futures prices for iron ore moved higher this week on a combination of stronger demand from steel producers and concerns about the impact of cyclone weather off WA’s coast.
The Dalian Commodities Exchange’s May-settlement iron ore futures contract traded higher Tuesday at ¥1,128 per tonne ($US172.20/tonne), according to exchange data.
“Iron ore futures posted further gains amid signs of strong demand,” said ANZ Bank analysts.
Iron ore demand is inexorably tied to Chinese infrastructure spending and is the main indicator to watch, said Commonwealth Bank of Australia analysts.
“We expect China’s commodity demand growth to eventually ease, but that looks likely later this year,” the bank said in a report.
Iron ore prices also gathered some strength from the threat of several cyclone weather systems in the vicinity of Western Australia and its shipping ports for iron ore.
At one point last week three tropical cyclones were developing off northwest Australia before cyclone Seroja swept down the coast of WA and made landfall in the mid-west region.
Cyclone Seroja did cause some disruption and damage to coastal areas including Kalbarri, a fishing town and tourist spot located 170km north of Geraldton, and 700km north of Perth.
The cyclone did not pass anywhere near to important iron ore ports such as Port Hedland.
Some experts said they have been surprised at the continued strength of China’s demand for iron ore and seaborne prices against the backdrop of an uncertain world economy.
“We have been surprised at the strength of not only Chinese steel production, but also the development of steel production elsewhere and the return of India,” said iron ore market expert and Magnetite Mines (ASX:MGT) director, Mark Eames.
“That actually has gone better,” he said, and added he was noticing an emerging trend in the market of steel makers buying higher grades of iron ore.
China’s steel sector is reported to be trying to diversify its source of iron ore imports to include new potential suppliers in African countries such as Algeria and the Republic of Congo.
A group of Chinese companies including the Metallurgical Corporation of China have signed a memorandum of understanding with the Algerian National Iron and Steel Company, according to reports.
The agreement is said to pave the way for a feasibility study for an iron ore project in Algeria’s Gara Djebilet iron ore deposit in the west of the North African country.
Some market sources expressed scepticism and pointed to the chequered history of recent Africa-based iron ore projects such as Simandou in Guinea.
|CODE||COMPANY||1 WEEK RETURN %||1 MONTH RETURN %||6 MONTH RETURN %||1 YEAR RETURN %||SHARE PRICE||MARKET CAP|
|MGU||Magnum Mining & Exp||57||43||200||237||0.165||$ 63,791,322.30|
|MGT||Magnetite Mines||25||122||329||3169||0.06||$ 151,708,285.44|
|RHI||Red Hill Iron||17||20||129||153||0.48||$ 28,741,511.52|
|MAG||Magmatic Resrce Ltd||17||33||-25||-43||0.14||$ 29,340,344.75|
|GWR||GWR Group Ltd||15||11||54||362||0.3||$ 98,405,593.98|
|FEX||Fenix Resources Ltd||9||9||82||750||0.255||$ 111,711,160.40|
|CIA||Champion Iron Ltd||8||0||95||244||6.08||$ 3,063,212,792.20|
|SHH||Shree Minerals Ltd||8||-13||40||600||0.014||$ 14,143,316.49|
|MGX||Mount Gibson Iron||8||-3||19||25||0.86||$ 1,002,100,015.41|
|MIN||Mineral Resources.||7||3||64||171||41.29||$ 7,768,373,019.12|
|GRR||Grange Resources.||5||-4||108||155||0.51||$ 596,029,429.47|
|VMS||Venture Minerals||3||15||94||520||0.062||$ 79,240,918.18|
|TI1||Tombador Iron||3||-10||115||237||0.071||$ 69,442,639.49|
|FMS||Flinders Mines Ltd||2||6||10||129||1.32||$ 222,880,121.64|
|FMG||Fortescue Metals Grp||2||-3||22||82||20.64||$ 63,272,729,064.90|
|RIO||Rio Tinto Limited||2||-2||18||28||114.08||$ 42,645,318,664.32|
|BHP||BHP Group Limited||1||-4||26||46||46.03||$ 136,039,417,374.92|
|RLC||Reedy Lagoon Corp.||0||-8||69||1000||0.022||$ 10,803,877.03|
|ADY||Admiralty Resources.||-4||16||29||340||0.022||$ 25,500,963.38|
|JMS||Jupiter Mines.||-5||-6||11||38||0.31||$ 607,287,220.23|
|SRK||Strike Resources||-6||1||63||393||0.19||$ 45,719,839.58|
|LCY||Legacy Iron Ore||-7||0||180||1300||0.014||$ 83,261,600.72|
|AKO||Akora Resources||-15||18||0.43||$ 22,524,304.00|
|BCK||Brockman Mining Ltd||-15||-20||-3||56||0.028||$ 259,818,499.67|
|ACS||Accent Resources NL||-27||-31||560||1220||0.066||$ 30,291,773.40|
Steel reinforcing bar (rebar) produced in China is trading close to its record 12-year high of about $US780.50 per tonne achieved a week earlier and is $US1 lower this week.
Chinese steel producers are passing on the higher cost of prices for steel raw materials to their customers in the construction and infrastructure sectors but it is affecting margins.
“The rise in steel-making raw materials is offsetting the gains in higher steel prices for many producers,” analysts at ANZ Bank said.
The approaching mid-year is traditionally a peak season for construction demand for rebar steel in China, and stock levels are fast depleting.
“Inventories of rebar in China fell for the fourth straight week, while stockpiles of iron ore at Chinese ports declined for the first time in six weeks,” said ANZ Bank analysts.
“This has helped allay fears that restrictions on steel capacity would stall demand for the steel making raw material,” the analysts added.
The London Metal Exchange’s steel rebar contract for one-month forward delivery or settlement was trading steady this week at $US636 per tonne, according to LME data.
The steel rebar contract took off in late November from a price of $US485 per tonne to hit a multi-year high of $US660 per tonne in January 2021.
Australian standard-grade hard coking coal for May shipment at ports in Queensland edged lower this week on thinning demand from China and rising market competition.
May shipments were fetching $US107.10 per tonne in the spot market, excluding freight costs which are usually met by the customer and vary according to destination.
In China, delivered prices for coking coal shipments mostly from North America were trading at $US200 per tonne, representing a substantial premium to Australian prices.
The higher prices reflected recent restocking by Chinese traders including some large steel mill customers, said Metal Bulletin.
Traders said they had noticed a wider range of origins offered to China, including coking coal shipments from lesser known regions such as South Africa and South America.
“Some large steel mills remain cautious of procuring new brands of seaborne-traded coking coal even though some prices are lower compared to North American cargoes,” said Metal Bulletin in a report.
Steel plants have to be careful about buying relatively unfamiliar brands of coking coal as they can affect the performance of their blast furnaces.
Australian coking coal shipments to China collapsed to zero in the first two months of 2021 from 5.1 million tonnes for the January-February 2020 period, according to port data.
Dalrymple Bay Infrastructure (ASX:DBI), operator of a Queensland coal terminal, shipped 54.6 million tonnes in 2020, down from 66.7 million tonnes in 2019, said Argus Media.
China tripled its intake of coking coal from its neighbour Mongolia to 3.9 million tonnes in the January-February 2021 period, from 1.3 million tonnes for the year ago period.
Other import origins of coking coal including from Canada, Russia and the US increased from a year ago, as China sought to diversify its intake away from Australian exports.
Steel plants on China’s coast, traditionally strong customers for Australian cargoes, have gradually changed to other sources of coking coal over the past year.
A London-listed company Contango was reported to be in talks with Chinese parties over a potential off-take deal for its Lubu coking coal project in the African country of Zimbabwe.
The Lubu project is in Zimbabwe’s Hwange coking coal district and the Chinese parties are looking at establishing a steel and coke hub in the area, said the reports.
|CODE||COMPANY||1 WEEK CHANGE %||1 MONTH CHANGE %||6 MONTH CHANGE %||1 YEAR CHANGE %||PRICE||MARKET CAP|
|AHQ||Allegiance Coal Ltd||0.115||34||69||34||72||$ 126,186,720.57|
|PDZ||Prairie Mining Ltd||0.26||18||13||27||93||$ 59,372,323.14|
|NCZ||New Century Resource||0.19||7||21||21||25||$ 229,886,328.74|
|LNY||Laneway Res Ltd||0.006||20||-14||20||50||$ 22,650,395.60|
|TER||Terracom Ltd||0.093||6||-45||16||4||$ 69,331,901.96|
|NAE||New Age Exploration||0.016||33||-16||14||700||$ 18,902,915.11|
|ATU||Atrum Coal Ltd||0.061||-76||-80||11||-68||$ 38,407,489.10|
|TIG||Tigers Realm Coal||0.008||14||33||7||55||$ 104,533,618.94|
|JAL||Jameson Resources||0.099||-1||-18||4||-29||$ 30,029,857.11|
|WHC||Whitehaven Coal||1.78||7||80||3||-12||$ 1,817,453,848.32|
|YAL||Yancoal Aust Ltd||2.28||-3||15||3||9||$ 3,010,601,916.36|
|SMR||Stanmore Coal Ltd||0.76||-1||-3||2||-21||$ 213,621,009.39|
|CRN||Coronado Global Res||0.9||-17||0||0||-28||$ 1,259,329,799.00|
|AKM||Aspire Mining Ltd||0.095||-4||20||0||23||$ 48,225,513.58|
|BCB||Bowen Coal Limited||0.066||29||6||0||53||$ 62,829,509.29|
|BRLDB||Bathurst Res Ltd.||0.4||-7||8||-2||-48||$ 68,380,777.20|
|NHC||New Hope Corporation||1.34||-1||3||-3||-9||$ 1,123,682,060.70|
|CKA||Cokal Ltd||0.066||8||20||-4||100||$ 58,248,685.72|
|MCM||Mc Mining Ltd||0.115||-8||5||-12||-43||$ 17,758,248.83|
|PAK||Pacific American Hld||0.02||-17||-9||-13||45||$ 6,371,698.00|
|MR1||Montem Resources||0.12||-20||-38||-23||$ 23,573,029.32|
Canada-focussed coking coal explorer Allegiance Coal (ASX:AHQ) announced this week that a global mining and resource investment firm is taking a stake in the company.
Global Energy and Resources (GEAR) has agreed to invest $15m in Allegiance Coal by way of a private share placement and to provide $US27m of funding for its New Elk project.
Allegiance Coal is developing its Tenas coking coal project in the Canadian province of British Columbia in partnership with Japanese trading company Itochu.
Tenas has a production start date of July-December 2022 and last year the company finalised its acquisition of the New Elk hard coking coal mine in the US state of Colorado.
The investment funding from GEAR will enable the building of a new rail link from the BNSF main railway to New Elk’s wash plant and the refurbishment of a coal production unit.
A railway spur to the project had existed until 2000, when the track was removed and sold as scrap metal to a local steel mill following the closure of the mine.
The new railway will reduce New Elk project’s cash costs by $US6 per tonne, as it will replace more expensive trucking transport, and allow the mine to increase its production.
GEAR and M Resources, an Australian coal trading company, are to subscribe to a private share placement for Allegiance Coal priced at 9 cents per share.
M Resources, the sales agent for New Elk coking coal, is to purchase $500,000 worth of shares in the coal explorer and GEAR is to subscribe to $15m worth of its shares.
GEAR is listed on the Singapore Exchange and its Australian subsidiary is Stanmore Coal (ASX:SMR) and it has an Indonesian coal subsidiary in PT Golden Energy Mines.
At Stockhead we tell it like it is. While Magnetite Mines is a Stockhead advertiser, it did not sponsor this article.