Bulk Buys: Weather concerns weigh on iron ore, coking coal trade tensions evident in supply
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Cold weather in China was among the factors which drove the price of seaborne iron ore fines down slightly this week, having come off a good run the week prior.
According to Metal Bulletin, the price of iron ore 62% fines shipped to Qingdao port fell $US2.20 per tonne on Monday to $US163.85 per tonne – or $215.73 in local currency terms.
At the same time last week the same measured price as reported by Metal Bulletin was trading at $162.03 per tonne.
The decline was attributed to a downtrend in Chinese steel prices and concerns over cold weather in China slowing construction activity, the price reporting service said. The Chinese Central Meteorological Administration has issued an orange warning for a cold wave through to Thursday in many parts of the country.
The pricing of fines stood in contrast with that of iron ore concentrate and pellets, which both experienced strong gains – up $US15.27 to $US183.98 and $US14.58 to $US213.86 respectively.
The recent momentum in China has been driven by a strengthened economic activity – one expected to largely determine the local market’s fate in 2021.
The signs are positive. On Tuesday, the Chinese National Bureau of Statistics reported the nation’s seventh consecutive month of industrial profit growth. The nation has reported 2.4% year-on-year growth for the first 11 months of 2020.
Coupled that with production constraints in Brazil, and Australian iron ore looms as a current and medium-term beneficiary of favourable economic conditions.
“Australian iron ore earnings appear set to record an all-time high in 2020-21; strong demand from China and a recovery in American, Japanese, South Korean and European demand has added to the impact of ongoing supply problems in Brazil,” the Australian Chief Economist said in the December Resources and Energy Quarterly.
“After topping $102 billion in 2019-20, iron ore export earnings are forecast to be $123 billion in 2020-21.”
Welcome news for Australia’s major iron ore producers – BHP (ASX:BHP), Rio Tinto (ASX:RIO), Fortescue Metals Group (ASX:FMG) and Hancock Prospecting, as well as a number of juniors developing iron ore projects in a favourable economic climate.
The Australian Government’s commodity research unit at the Department of Industry is forecasting an iron ore price around $US80 by the end of 2021.
The market’s appetite for iron ore is reflected in the share price performance of the major ASX listed mining stocks.
BHP’s share price has floated within striking distance of the $43 mark, while Rio crossed the $100/share mark in November and is currently sitting around $115. Both have achieved multi-year highs in recent times.
The value of FMG has also surged to highs not seen in a very long time. The stock is currently trading at around the $24 mark, a far cry from its 2016 low of $1.44.
It’s not just the major exporters who are making waves. Strike Resources (ASX:SRK) is currently developing the East Paulsens iron ore project in the Pilbara, and has seen its share price rise from 2c in March to around 15c at present.
It recently completed a compelling feasibility study on the project, bolstered by the strong economics at play globally.
“Based on the study, if we were in production today we’d be generating $60-70 million pre-tax cashflow per year,” Strike MD William Johnson told Stockhead last month.
“For an investment of less than $16 million, that’s a pretty good return by anyone’s standards.”
Tasmania-based Grange Resources (ASX:GRR) is another to have had a great run in 2020, up strongly this month to trade at around 30c, while South Australia-focused Magnetite Mines (ASX:MGT) has also seen steady share price gains over the course of the year and is currently trading around 1.3c.
Chinese coking coal imports fell 39.7% in November compared with the same month last year, according to Metal Bulletin.
That may not be all that surprising, given recent moves by the nation to curb imports of the stuff from Australia.
It could also go some way to explaining a price point increase for premium hard coking coal, which was trading at $199.80 per tonne on Monday including cost and freight.
Regular coking coal sat at $185 per tonne.
Speaking on the recent decision by Beijing to limit Australian coal imports this week, Argus Media’s Jo Clarke said bans on coking coal – a core ingredient in steelmaking – had the potential to push the price of iron ore higher.
When any such unofficial ban will be lifted is unclear, though Australian coking coal producers would be hopeful of a resolution sooner rather than later.
“On a national level, the basic economics of steelmaking have done much to persuade Australia’s coking coal suppliers that China will relent in its import ban in the new year, as new quotas are released for 2021,” Clarke said.
“The concern is that politics will trump economics and that Beijing will be prepared to continue the ban despite the cost to send a message to Australia.”
The Chinese National Bureau of Statistics revealed yesterday that Chinese coal industry profits rose 9.1% in November – their first increase all year.
Lastly, Chinese steel rebar prices rose on Monday, Metal Bulletin said, after three days of decreases, though market participants remained wary of the cold weather forecast to come.
The price reporting service said the outlook for steel rebar was pessimistic, though prices had bounced back to around $US678-$US681 per tonne on Monday – around the same position as they were on Christmas eve.
At Stockhead, we tell it like it is. While Strike Resources and Magnetite Mines are Stockhead advertisers, they did not sponsor this article.