Pic: Getty
Bulk Buys: The market is turning bearish on iron ore, but Fortescue maintains the faith
Mining
share
- Iron ore prices fall hard as Chinese steel mills show signs of slowing down
- Prices have been strong this year
- New Fortescue CEO Fiona Hick sees strong supply-demand fundamentals for Australia’s headline commodity
Has the bottom fallen out of 2023’s iron ore miracle run?
Having risen over 50% from last year’s stultifying fall below US$80/t, levels where companies outside the Dollar Store costs of the iron ore majors struggle to operate, we’re back in a funk.
The most recent fall was a big ‘un, an 8% drop to around US$105/t on Friday as sentiment tumbled.
For context, prices were upwards of US$130/t only a few weeks ago.
A number of factors are in play. While China’s economy has posted a massive recovery from its Covid lows — with GDP an impressive 4.5% YoY in the March quarter — property and construction haven’t been the big drivers.
Steel producers have been losing money, never a great thing for iron ore producers, with the input cost of iron ore and coking coal too high for many Chinese factories.
Late last week MySteel reported the first fall in daily steel production in China since January for the middle 10 days of April.
Output fell around 14,000t/d to 3.06Mt/d. That’s a fall of just 0.5%, but indicative of suggestions production is about to be brought offline and taken into maintenance with mill owners struggling to turn a profit.
“During the period, some domestic steel mills conducted maintenance on their steelmaking facilities or slowed their production pace, given their shrinking profit margins, Mysteel Global learned,” MySteel said.
“The mills were reacting to the weakness in finished steel prices and the lower-than-expected steel demand from end-users.”
How bad is it really?
That sounds bad, even if iron ore prices are coming off a high mark.
But there remains (not unexpected) optimism from the big miners, who are all down more than 5% over the past five trading days.
BHP’s (ASX:BHP) Mike Henry last week waxed lyrical about China, saying commodity demand remained strong.
“Recent engagements with customers in China and India have reaffirmed our positive outlook for commodity demand, with China’s economic rebound and solid momentum in India’s steelmaking growth helping to offset the impact of slowing growth in the US, Japan and Europe,” he said as BHP rolled out its March results on Friday.
READ: BHP – A new copper discovery and a record pace in iron ore highlight BHP quarterly
That bullish mood was matched by new Fortescue Metals Group (ASX:FMG) CEO Fiona Hick, who has taken over the day to day running of the ASX 20 giant’s flagship iron ore business from billionaire chairman Andrew Forrest.
“There’s always a level of day to day volatility. We try to look through that to the underlying fundamentals on supply and demand,” she said on a call with analysts and media on Monday.
“When we do that, we’re still quite optimistic on China’s crude steel production and demand for certainly this calendar year and beyond.
“There have been rumours, you’re right, of production (cuts) in recent weeks. But our analysis suggests that demand in China is actually going to increase year on year.
“And so we’re seeing demand in China improve in recent weeks. Steel inventories continuing to draw at both traders and mills, and inventories are low.”
Market supporting demand for low grade iron ore
FMG shipped 46.3Mt in the March quarter and at 143.1Mt year to date, has placed itself to potentially beat last financial year’s record exports of 189Mt. It has set an aim of shipping between 187-192Mt in FY23, including some volume from the US$3.9b Iron Bridge Magnetite operation.
FMG turned out its first concentrate on Friday, though project delays and uncertainty around its ramp up mean the company will ship less than the 1Mt (full run rate 22Mtpa) it had previously pledged for FY23.
The strategy for FMG is to add high grade, premium production suited to a decarbonising world and flight to quality anticipated from steel producers.
At over 67% Fe, Iron Bridge will be able to supply DRI plants which could, potentially, run on green hydrogen at some point in the future, another product FMG wants to become a leader in through its Fortescue Future Industries offshoot.
FMG has been better known as a pedlar of low grade iron ore, trading in an area of the market once neglected by the majors. Its DSO tends to do well at times when steel mills are stressed as they switch purchases to discounted products.
That appetite has been seen in recent months, with Fortescue achieving 87% realisation against Platts 62% Fe prices in the March quarter.
“Data suggests that the rest of world has found its bottom and in China, in particular, we are seeing crude steel production rates and pig iron production rates continue to improve and inventory continue to draw,” FMG marketing chief Vivienne Tieu said.
“Looking ahead, economic growth is a key priority for China in 2023 and we think that this is supportive of the iron ore market.
“Given where steel margins are at the moment, they are challenged. So we continue to see a preference for products like ours, and we expect that to continue going forward.”
| CODE | COMPANY | PRICE | 1 WEEK RETURN % | 1 MONTH RETURN % | 6 MONTH RETURN % | 1 YEAR RETURN % | MARKET CAP |
|---|---|---|---|---|---|---|---|
| ACS | Accent Resources NL | 0.007 | 0% | -72% | -72% | -88% | $ 3,311,890.98 |
| ADY | Admiralty Resources. | 0.007 | 0% | -13% | -13% | -59% | $ 9,125,054.07 |
| AKO | Akora Resources | 0.165 | -8% | 14% | -13% | -45% | $ 11,550,433.60 |
| BCK | Brockman Mining Ltd | 0.03 | 0% | 15% | 20% | -33% | $ 278,406,963.93 |
| BHP | BHP Group Limited | 44.17 | -5% | 1% | 16% | -2% | $ 228,063,241,431.12 |
| CIA | Champion Iron Ltd | 6.7 | -4% | -7% | 37% | -13% | $ 3,568,632,569.40 |
| CZR | CZR Resources Ltd | 0.1825 | 4% | -4% | -23% | -42% | $ 42,432,236.28 |
| DRE | Dreadnought Resources Ltd | 0.065 | -14% | 8% | -35% | 48% | $ 221,952,790.74 |
| EFE | Eastern Resources | 0.013 | 18% | 30% | -67% | -74% | $ 16,145,303.99 |
| CUF | Cufe Ltd | 0.015 | 0% | -12% | -6% | -55% | $ 14,491,685.48 |
| FEX | Fenix Resources Ltd | 0.24 | 0% | 2% | 0% | -28% | $ 148,961,289.60 |
| FMG | Fortescue Metals Grp | 20.76 | -7% | 0% | 27% | -3% | $ 66,166,956,087.82 |
| FMS | Flinders Mines Ltd | 0.405 | -4% | -6% | -22% | -23% | $ 68,383,673.69 |
| GEN | Genmin | 0.15 | -17% | -17% | -40% | -25% | $ 72,125,317.44 |
| GRR | Grange Resources. | 0.63 | -9% | -13% | -13% | -53% | $ 734,910,073.23 |
| GWR | GWR Group Ltd | 0.081 | -4% | -26% | 31% | -52% | $ 26,018,549.06 |
| HAV | Havilah Resources | 0.275 | -10% | -15% | -4% | 49% | $ 85,492,586.70 |
| HAW | Hawthorn Resources | 0.085 | 21% | -2% | -6% | -50% | $ 28,476,327.11 |
| HIO | Hawsons Iron Ltd | 0.05 | -18% | 2% | -52% | -91% | $ 48,710,766.13 |
| IRD | Iron Road Ltd | 0.105 | 0% | -13% | -19% | -43% | $ 84,723,604.56 |
| JNO | Juno | 0.09 | -9% | 5% | -25% | -33% | $ 12,480,536.09 |
| LCY | Legacy Iron Ore | 0.018 | 20% | 6% | -10% | -42% | $ 115,322,871.58 |
| MAG | Magmatic Resrce Ltd | 0.115 | -4% | 37% | 0% | 35% | $ 33,626,207.78 |
| MDX | Mindax Limited | 0.23 | -8% | 132% | 290% | 290% | $ 490,334,083.20 |
| MGT | Magnetite Mines | 0.53 | -8% | -12% | -47% | -66% | $ 40,194,250.77 |
| MGU | Magnum Mining & Exp | 0.019 | -5% | 12% | -51% | -76% | $ 13,392,690.91 |
| MGX | Mount Gibson Iron | 0.495 | -5% | -1% | 25% | -24% | $ 619,353,859.83 |
| MIN | Mineral Resources. | 80.36 | 2% | 4% | 8% | 30% | $ 15,204,954,823.30 |
| MIO | Macarthur Minerals | 0.145 | 7% | 4% | 12% | -68% | $ 25,676,290.64 |
| PFE | Panteraminerals | 0.085 | -6% | -10% | -19% | -51% | $ 4,120,089.60 |
| PLG | Pearlgullironlimited | 0.03 | -25% | -9% | 27% | -59% | $ 4,692,487.14 |
| RHI | Red Hill Minerals | 4.4 | -6% | -1% | 22% | 30% | $ 280,843,855.60 |
| RIO | Rio Tinto Limited | 113.18 | -6% | -2% | 24% | -3% | $ 43,432,297,038.00 |
| RLC | Reedy Lagoon Corp. | 0.006 | -14% | 0% | -54% | -82% | $ 3,400,317.61 |
| CTN | Catalina Resources | 0.0045 | -10% | -10% | -40% | -72% | $ 6,192,434.46 |
| SRK | Strike Resources | 0.058 | 2% | 0% | -45% | -59% | $ 17,308,750.00 |
| SRN | Surefire Rescs NL | 0.023 | 5% | 28% | 77% | 0% | $ 37,952,723.45 |
| TI1 | Tombador Iron | 0.024 | 4% | 4% | -8% | -45% | $ 51,287,576.95 |
| TLM | Talisman Mining | 0.14 | 0% | 4% | 4% | -22% | $ 27,222,227.07 |
| VMS | Venture Minerals | 0.021 | 11% | 5% | -14% | -66% | $ 40,697,524.62 |
| EQN | Equinoxresources | 0.145 | -9% | -15% | 16% | -26% | $ 6,525,000.15 |
| AMD | Arrow Minerals | 0.005 | 11% | 25% | 0% | 11% | $ 15,118,825.48 |
Stanmore looking for strong June quarter
After three years under the thumb of La Nina, coal miners on the east coast are hopeful they will be able to ramp up production as drier weather returns.
Bearing in mind those weather related constraints have played some role in keeping prices for both thermal and met coal at somewhat mind-boggling levels, with prices remaining strong producers are hungry for thus far elusive growth.
Stanmore Coal (ASX:SMR) produced 4.1Mt in the March quarter, down from 4.4Mt in the December period at its Poitrel, South Walker Creek, Millennium and Isaac Plains mines in Queensland’s Bowen Basin.
Its saleable coal production lifted slightly from 3.1Mt to 3.2Mt as well, but sales fell from 3.5Mt to 2.8Mt as rain hammered port infrastructure at the Dalrymple Bay Coal Terminal.
“Sales of produced coal were negatively impacted by disruptions at DBCT following significant January weather events and the inability of rail infrastructure and haulage (both below and above) to recover,” CEO Marcelo Matos said in its quarterly report on Monday.
“All sites have ended the quarter with healthy levels of product and ROM stockpiles which should support a strong second quarter performance.
“The metallurgical coal market weakened during the quarter, as general supply tightness eased following better than expected production recovery from the wet weather season.
“The reopening of the China trade relative to recovering Australian supply, and India heading into monsoon season will be important factors for the market over the coming quarter.”
Indonesian-backed Stanmore produces PCI and semi-soft coking coal, growing into a $2.9b company last year off the back of its purchase of BHP’s BMC business and, subsequently, Japanese trader Mitsui’s minority stake.
Its results show financially the market remains strong for coal producers. SMR finished the quarter with US$242 million in cash after its annual cash flow sweep reduced its acquisition debt facility by 42% to US$355m.
Stanmore, viewed as a potential bidder for the Daunia and Blackwater mines from BHP, hosted a net debt position of US$113m and liquidity of US$466m as of March 31.
Thermal and met coal prices remain strong despite big falls in 2023 so far.
Front month Newcastle coal futures were paying US$189.35/t on Monday, while premium hard coking coal was fetching US$252/t.
| CODE | COMPANY | PRICE | 1 WEEK RETURN % | 1 MONTH RETURN % | 6 MONTH RETURN % | 1 YEAR RETURN % | MARKET CAP |
|---|---|---|---|---|---|---|---|
| NAE | New Age Exploration | 0.005 | 0% | -17% | -38% | -64% | $ 7,179,494.55 |
| CKA | Cokal Ltd | 0.155 | -3% | -6% | -31% | -6% | $ 172,631,836.80 |
| NCZ | New Century Resource | 1.1 | 0% | -7% | 2% | -49% | $ 148,482,094.20 |
| BCB | Bowen Coal Limited | 0.24 | -6% | -8% | -26% | -20% | $ 451,217,315.85 |
| SVG | Savannah Goldfields | 0.165 | 0% | -8% | -18% | -18% | $ 31,159,992.27 |
| GRX | Greenx Metals Ltd | 0.76 | -1% | 33% | 158% | 280% | $ 203,432,573.64 |
| AKM | Aspire Mining Ltd | 0.064 | 7% | 16% | -32% | -23% | $ 29,950,582.12 |
| AVM | Advance Metals Ltd | 0.008 | -11% | 0% | -43% | -53% | $ 5,820,440.69 |
| AHQ | Allegiance Coal Ltd | 0.013 | 0% | 0% | -75% | -97% | $ 13,063,647.08 |
| YAL | Yancoal Aust Ltd | 5.54 | -5% | -1% | -7% | 11% | $ 7,473,687,213.42 |
| NHC | New Hope Corporation | 5.25 | -9% | -1% | -29% | 57% | $ 4,702,496,312.41 |
| TIG | Tigers Realm Coal | 0.01 | -20% | -23% | -29% | -33% | $ 130,667,023.68 |
| SMR | Stanmore Resources | 3.24 | -2% | 1% | 17% | 54% | $ 2,947,550,643.18 |
| WHC | Whitehaven Coal | 7.22 | 5% | 9% | -31% | 50% | $ 6,562,680,948.18 |
| BRL | Bathurst Res Ltd. | 1.0025 | -4% | 8% | 9% | -14% | $ 197,100,573.40 |
| CRN | Coronado Global Res | 1.66 | 2% | 0% | -10% | -11% | $ 2,799,677,729.10 |
| JAL | Jameson Resources | 0.07 | -11% | -3% | 8% | -17% | $ 30,929,376.90 |
| TER | Terracom Ltd | 0.615 | -7% | 12% | -39% | 6% | $ 484,584,572.18 |
| ATU | Atrum Coal Ltd | 0.005 | 0% | 0% | -38% | -54% | $ 6,958,495.86 |
| MCM | Mc Mining Ltd | 0.2 | 25% | 29% | -9% | 64% | $ 83,929,692.42 |
| DBI | Dalrymple Bay | 2.67 | -2% | 2% | 11% | 22% | $ 1,333,598,884.23 |
