Ground Breakers: Iron ore back below US$100/t on China steel concerns

Iron ore prices dived under the US$100/t mark overnight, falling to their lowest levels in around six weeks.

According to Fastmarkets MB benchmark 62% iron ore fines were demanding US$95.77/t in northern China, down US$7.66.

That move followed a bad day for iron ore futures on the Dalian exchange, briefly hitting the down limit of 10% as port stocks rose and evidence of a further decline in steel output emerged.

It is the first time the price has slid under the key US$100/t mark since rebounding from levels of around US$93/t on September 21.

Margins are more tenuous for low grade miners. Fastmarkets reported 58% fines were fetching just US$67.70/t.

Big miners known for the lower grade of their product like Mineral Resources (ASX:MIN) and Fortescue Metals Group (ASX:FMG) reported much wider discounts for their ore in the September quarter than in FY2021.

ANZ Research’s Catherine Birch said concerns about the real estate market and steel output curbs appeared to be the main drivers.

“Concerns over the outlook for the Chinese real estate market continue to weigh on the iron ore and steel markets. China appeared to ramp up efforts to curb steel production, with restrictions now extended into the first quarter of 2022 to ensure less pollution during the Beijing Winter Olympics,” she said in a note this morning.

Commbank analyst Vivek Dhar said winter steel cuts in some major cities in China, which consumes around 80% of Australia’s iron ore ranged as high as 30%.

“Authorities have applied restrictions on sintering and blast furnace activity in Tangshan (~14% of crude steel output) to reduce air pollution levels,” he said.

“Tangshan’s restrictions signal the prospect of strictly enforced winter steel output cuts from November 15 to March 15.

“These cuts will require major cities in the Chinese provinces of Hebei, Shanxi, Henan and Shandong to cut steel production by 30%/yr relative to last year.”

Iron ore equities which were hammered yesterday remained steady early in trade, with the materials index up 1.65% alongside the broader market.

BIG BOY HIGHLIGHTS

Twiggy about to buckle on Noront deal?

It’s around two weeks since BHP (ASX:BHP) one-upped Andrew Forrest by flexing its considerable muscle in the battle for Canadian “Ring of Fire” explorer Noront Resources.

The TSX listed company has courted the ASX’s biggest miner and the Australian iron ore magnate for the better part of a year.

Last month Forrest took the upper hand when his company Wyloo Metals had a 70c a share bid accepted by Noront, before BHP immediately stole its thunder with a 75c a share offer, a 213% premium to its value when all this takeover malarkey began.

Now, a detente. BHP today said it was in discussions with Wyloo about its potential support of the takeover offer, extending its expiry date from November 9 to November 16.

Given Twiggy’s 37.4% stake in Noront, the reality is he stood to be a winner either way in the bidding war. The Fortescue Metals Group (ASX:FMG) chairman bought in when the share price was around the C20c mark in a $US26.5 million deal with Resource Capital Funds.

If he sells into the BHP deal, Forrest and Wyloo could walk away with around C$145 million, most of it profit.

Although comments from BHP that it and Wyloo have “engaged in initial conversations and are considering a mutually beneficial arrangement” suggest a JV or other tie-up could be on the cards as well.

It’s almost as if that was the plan all along.

BHP share price today:

Westgold dumps Gascoyne deal

The Westgold-Gascoyne saga looks to be over, with Westgold (ASX:WGX) confirming today it will abandon its courtship of Gascoyne Resources (ASX:GCY).

In the end it decided it was not prepared to share with Firefly Resources (ASX:FFR), the junior explorer that secured its merger with Gascoyne in a court hearing on Monday.

Westgold belatedly received the support of its target’s board and major shareholders late last week, but it proved too little too late. It will not waive a condition of its takeover bid that the Firefly tie-up had to be cancelled.

Westgold had set its sights on Gascoyne so it could fold the Dalgaranga gold mine and mill into its Murchison gold projects, where it believed the addition of Dalgaranga could help it expand over time to 500,000ozpa.

Executive director Wayne Bramwell said there are other infrastructure options for the mid-tier gold miner to pursue its growth ambitions.

“Westgold is disappointed with the decision by the court to approve the Firefly Scheme as we and almost 50% of Gascoyne’s shareholder base believed that the combination of Westgold and Gascoyne would deliver a superior outcome for Gascoyne shareholders,” he said.

“We identified the opportunity to enhance the low grade Dalgaranga operation with additional high grade ore from our Cue assets for the benefit of both Westgold and Gascoyne shareholders and our offer reflected that value.

“Dalgaranga is just one infrastructure option for Westgold. Now we move on and will continue to pursue a disciplined growth strategy for the benefit of all our shareholders.”