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Iron Ore

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pixel said:
OM lets me take a dozen bites a day and still sends me only one contract note with one minimum brokerage.
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That's very nice to know Pixel...have been looking at something as an alternative for short term share trades, as opposed to CFD's...will look into OM better.
 
Rio Tinto made a presentation today. I am interested in critiques to their argument. Here is the key data:

Demand for iron ore is going up, India etc developing demand, 80% of population... I don't have much problem with this, but can easily be swayed if you have a better viewpoint (which would not be hard).

2014-10-09 18_21_55-20141009 - RIO Investment presentation Iron Ore demand - Adobe Reader.png

Note how the Chinese volume expectation isn't particularly aggressive.

If this is the cost curve evolution, this argues for a sustained and pretty high price for iron ore and solid export value when it is all mixed in, even if some of the high cost miners run at losses but are maintained for strategic purposes etc.

2014-10-09 18_21_19-20141009 - RIO Investment presentation Cost curve.png
 
DeepState said:
Rio Tinto made a presentation today. I am interested in critiques to their argument. Here is the key data:

Demand for iron ore is going up, India etc developing demand, 80% of population... I don't have much problem with this, but can easily be swayed if you have a better viewpoint (which would not be hard).

Note how the Chinese volume expectation isn't particularly aggressive.

If this is the cost curve evolution, this argues for a sustained and pretty high price for iron ore and solid export value when it is all mixed in, even if some of the high cost miners run at losses but are maintained for strategic purposes etc.
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It is very interesting to watch this unfolds. It's long term strategic game theory at a grand scale. We all know the classic economics 101 textbook supply and demand curves in theory. But nobody actually knows what the next marginal 25Mtps capacity is going to do to the price of the commodity.

I can see the Chinese doing their counter strategic thing... i.e. securing resources (probably mostly in Africa) and producing at marginal loss for strategic purposes as you say. RIO/BHP's expanding capacity may kill off smaller high cost players, it is not going to deter a State player. The Chineses are probably sending a Xmas thank you card to Andrew Mackenzie and Sam Walsh as we speak for all the cheap capacity.
 
DeepState said:
If this is the cost curve evolution, this argues for a sustained and pretty high price for iron ore and solid export value when it is all mixed in, even if some of the high cost miners run at losses but are maintained for strategic purposes etc.
Click to expand...


Wasn't there going to be a supply response out of Africa?:confused: The cash costs were like ridiculous, in the order of $15/tonne. This was a couple of years ago that I read about it. And the reserves were supposed to be similar to the Pilbara.
 
skc said:
I can see the Chinese doing their counter strategic thing... i.e. securing resources (probably mostly in Africa) and producing at marginal loss for strategic purposes as you say. RIO/BHP's expanding capacity may kill off smaller high cost players, it is not going to deter a State player. The Chineses are probably sending a Xmas thank you card to Andrew Mackenzie and Sam Walsh as we speak for all the cheap capacity.
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Fully agree with this view.BHP/RIO are the dream team for the chinese and will end up sucked dry...sorry just realised the investors aka us and as a side effect the australian tax payers via reduced profits/dividends are subsidising the chinese manufacturers now, and on the long term as skc explains.Coal is in the same bandwagon.
 
Just wondering whether it would be a good idea to buy and stockpile all this cheap iron ore and sell it on the market at higher prices in years to come. Is that dumber than over supplying a market and getting less return per unit.
 
You mean buy some as an individual?

Or the mining companies stockpile millions of tonnes of it above ground?

With the actual mining costs in WA (most of the Australian production) so low, they could just leave it in the ground and effectively have a stockpile.

Not so in Tas however, since the ore all goes through a factory (which has a limited capacity) and comes out as high grade pellets (worth more than just the ore "as is"). But that's only a fairly small operation, about 2.5 million tonnes a year. It's a locally significant employer etc but trivial in terms of iron ore production as such.

Not sure about the mines in SA.:2twocents
 
the below is from from macrobusiness.

will make for interestign times to see how much the various Govts will try to prop up uncompetitive miners. If it's not good enough for the car manufacturers one has to wonder why it's good enough for the miners, especially when there's not a snowball's chance of prices rising high enough again to end the subsidies.

Lets just rip the bandaid off quickly and be done with the pain.

The first scenario is the cartel structure favoured by various pollies that seeks to protect and include iron ore juniors by pulling back major miner supply expansions. The second is also a cartel but one that results from swift junior rationalisation enabling the major miners to consolidate their pricing power.

In the junior cartel, Australian iron ore produces 837 million tonnes (mt) of iron ore from 2016 onwards. It does so at a slightly improved price for 2016 as oversupply is reduced in the short term by 43 mt as majors retrench. However, as Sino, Roy Hill, Anglo and Vale continue their expansions and Chinese demand keeps falling, the glut builds from 2017 onwards and the price keeps falling. In due course, smaller members of junior cartel require enormous subsidy to stay afloat as they register huge losses year after year in a price environment stuck at $20 and below. It’s either that or the cartel must negotiate spectacularly implausible shared volume cuts across all Australian producers (at least those in the cartel). Trade rules must be junked, Chinese relations destroyed and the WTO as well as ACCC told to piss off. To operate this would require a virtual nationalisation of all players as total transparency governs quotas, otherwise widespread cheating is inevitable, as in OPEC.

In the alternative model, the major cartel, Australian iron produces 880mt in 2016. It does so at an average $10 lower than the junior cartel in that year given the higher supply glut. However, as the 50mt of junior and 165mt of Fortescue production shuts down by 2017 the iron ore price at first stabilises and then slowly rebounds as some pricing power returns to the major producer’s cartel. Iron ore volumes are down to 715mt but the price is trading at $40 per tonne in a rough market balance.

Juxtaposing these two scenarios gives you the following total revenue chart for the sector (and nation):
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io revenues.PNG
 
Well recent moves in the Iron ore price are interesting, back over $70 dollars / tonne today as reported by metal bulletin.

it's an interesting game to watch, I tell you, value investing is the most interesting and rewarding job there is.
 
notting said:
Interesting is the word. Check the volume spike on SLX vector steel ETF on the 8th of Aug which was the same day that the Chinese called the beginning of the 'steel ice age.'

https://www.google.com/finance?cid=3254555
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Definitely interesting. It's like every steel user all of of sudden got the wink and the nod from higher-up's to start building and use steel again. It's really bizarre how the capital investment tap is turned on again just like that...
 
skc said:
Definitely interesting. It's like every steel user all of of sudden got the wink and the nod from higher-up's to start building and use steel again. It's really bizarre how the capital investment tap is turned on again just like that...
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Did the central bankers, after agreeing to end the currency war, agree to all tell their individual legislators that 'things are slowing, we have no amo left and you all must do something or we risk sliding into a deep deep hole without a ladder out. Just start building infrastructure, anything, get to it!'
 
notting said:
Did the central bankers, after agreeing to end the currency war, agree to all tell their individual legislators that 'things are slowing, we have no amo left and you all must do something or we risk sliding into a deep deep hole without a ladder out. Just start building infrastructure, anything, get to it!'
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Who knows... or may be the crowd finally clicked that holding onto anything physical (i.e. commodities) is better than suffering negative rates?!

Today the iron ore plays are all quite weak despite strong I/O prices so a bit of divergence today.
 
skc said:
Who knows... or may be the crowd finally clicked that holding onto anything physical (i.e. commodities) is better than suffering negative rates?!

Today the iron ore plays are all quite weak despite strong I/O prices so a bit of divergence today.
Click to expand...

On my phone at the moment but just watched an interesting bloomberg video on the increase in construction activity again in China, up 20% yoy. They're saying they're actually using steel again, as well zinc is up and copper to some degree as they stimulate the economy and sink further into debt....seems we have a mini commodity boom again which any USD weakness will exacerbate.
 

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