June 25, 2013
What Is The Outlook For Iron Ore, Scrap, And Metallics?
By Ryan Jackson in Vancouver
After reaching a seven month low at the end of May, the price of iron ore has been marching upward recently.
China’s spot 63.5% iron ore price has jumped to around US$120 per tonne.
But despite that, many analysts continue to predict 2013 will be a weak year for iron ore. And the majority predict prices will to continue to slide into 2014.
There are a number of factors at play in China and the United States which are fundamentally bearish for iron ore and a big shakeup of the markets would be needed to overcome them.
China is the world’s largest importer of iron ore and accounts for some 60 per cent of global seaborne iron ore demand. Given the magnitude of the Chinese market, it’s only natural that the price of iron is closely linked with the prospects for continued growth in China.
A strong selloff by traders in April, which drove the price down considerably, led to lowered stockpiles which required shoring up in June driving the price upward.
And while it’s fairly safe to say that China will continue to grow, whether the colossal growth rates we have seen to date remains to be seen.
Part of the changing economic landscape in China could involve a shift from an economy based on rapid infrastructure and construction growth to a more consumer-oriented economy. If such a transition becomes a reality, we could see demand for steel begin to wane over the next few years.
That’s not the picture in the immediate term, though. China’s iron ore imports rose to the third highest level in history this May to 68.6 million tonnes, according the official Chinese customs figures, illustrating that demand does remain strong for now.
But major players within the Chinese iron and steel production industry are having doubts about the future. Just recently Ontario Iron Mining, a private Canadian company which is backed by a number of Chinese state owned interests in the steel business, scrapped a deal with Venture-listed Northern Iron to purchase two properties in the Red Lake region of Ontario.
Jonas Struthers of Ontario Iron cited “difficult market and trading conditions in China’s steel industry” as the primary reason for the deal’s collapse, despite satisfactory due diligence on the property.
There are also structural changes afoot. At the moment, China’s steel production relies primarily on the less advanced blast furnace technique of steel production. But the Chinese government has been actively promoting a shift to electric arc furnaces which would provide a number of benefits, including reduced power consumption and dramatically decreased air pollution, two areas which are a focus for Chinese policy makers.
After China, the United States is the next major steel producer and, unlike China, the US has embraced electric arc furnaces to produce steel from scrap steel, hot briquetted iron, and other metallics.
That makes the United States the biggest electric arc furnace user in the world and therefore the country to watch when considering the future prices of scrap and other metallics.
If the US economy picks up and steel production is on the rise, it will inevitably mean that global prices of scrap steel and metallics will rise. This is especially because the US is also the largest exporter of scrap steel. Increased use domestically will have an immediate effect on the global supply.
The recent pickup in the US auto industry has been widely publicized and, with new cars rolling off the line, that is good news for the American steel industry.
But the news elsewhere is less promising. Northern Iron’s chief executive Basil Botha shared some insight regarding the state of the US steel industry during a recent interview with Minesite.com, pointing to another major component of US steel demand which remains on life support.
“When we spoke with Nucor, the biggest steel producer in the US who run 18 electric arc furnaces dotted along the Great Lakes and the South” said Basil, “they were telling us that they were running at 80 to 85 per cent capacity for all rolled products, for cars, fridges, etcetera. But on the rebar side they were only running at about 30 per cent.”
So, while the demand from the consumer and auto sectors is strong, the continued weakness in real estate and construction in the United States puts a serious damper on the steel industry. In effect, the industry is firing on only one cylinder as the construction industry remains stalled.
It’s even got to the point where manufacturers are fighting back collectively against the erosion of the rebar market in the United States. The rebar price has fallen from as high as US$690 a tonne in February to US$645 a tonne now. And even at the February price, margins at American steel mills were tight. So major steel producers Nucor and Gerdau Long Steel North America have dug in their heels and are resisting any further price erosion. That’s prompted a number of other manufactures to follow suit.
For scrap steel and metallics, the price outlook can be tracked in the headlines - if the auto sector is strong and construction sees an improvement, the global prices will respond favourably. In fact, the response is likely to be quite marked, considering the smaller market size when compared to iron ore, and the large component controlled by the United States.
For iron ore, the supply side of the equation is a little more complicated. At present there is a large amount of capacity which is slated to come online, especially from Australia where exports hit a record annualised rate of 592 million tonnes in December, before dropping back to 494 million tonnes in February.
At the same time though, export growth from Brazil has largely flatlined at 275 million tonnes as companies have failed to bring major projects online there.
India has been the most dramatic mover in the iron ore supply equation. Having been a major supplier shipping 81 million tonnes in 2011 and a peak of 119 million tonnes in 2009, Indian producers managed to achieve an annualized rate of only eight million tonnes in the second half of 2012. The massive drop off is a product of government interference in the sector and is likely to be an interesting factor in the supply equation going forward.
Nevertheless, new capacity is expected to come on stream in the near term and, when combined with the general slowdown in China, is expected to spell erosion in the global iron ore price. For scrap and metallics, the big swing factor is US construction, and a turnaround there could spell an uptick in the price.
Source >>>>> www.minesite.com
*****
What Is The Outlook For Iron Ore, Scrap, And Metallics?
By Ryan Jackson in Vancouver
After reaching a seven month low at the end of May, the price of iron ore has been marching upward recently.
China’s spot 63.5% iron ore price has jumped to around US$120 per tonne.
But despite that, many analysts continue to predict 2013 will be a weak year for iron ore. And the majority predict prices will to continue to slide into 2014.
There are a number of factors at play in China and the United States which are fundamentally bearish for iron ore and a big shakeup of the markets would be needed to overcome them.
China is the world’s largest importer of iron ore and accounts for some 60 per cent of global seaborne iron ore demand. Given the magnitude of the Chinese market, it’s only natural that the price of iron is closely linked with the prospects for continued growth in China.
A strong selloff by traders in April, which drove the price down considerably, led to lowered stockpiles which required shoring up in June driving the price upward.
And while it’s fairly safe to say that China will continue to grow, whether the colossal growth rates we have seen to date remains to be seen.
Part of the changing economic landscape in China could involve a shift from an economy based on rapid infrastructure and construction growth to a more consumer-oriented economy. If such a transition becomes a reality, we could see demand for steel begin to wane over the next few years.
That’s not the picture in the immediate term, though. China’s iron ore imports rose to the third highest level in history this May to 68.6 million tonnes, according the official Chinese customs figures, illustrating that demand does remain strong for now.
But major players within the Chinese iron and steel production industry are having doubts about the future. Just recently Ontario Iron Mining, a private Canadian company which is backed by a number of Chinese state owned interests in the steel business, scrapped a deal with Venture-listed Northern Iron to purchase two properties in the Red Lake region of Ontario.
Jonas Struthers of Ontario Iron cited “difficult market and trading conditions in China’s steel industry” as the primary reason for the deal’s collapse, despite satisfactory due diligence on the property.
There are also structural changes afoot. At the moment, China’s steel production relies primarily on the less advanced blast furnace technique of steel production. But the Chinese government has been actively promoting a shift to electric arc furnaces which would provide a number of benefits, including reduced power consumption and dramatically decreased air pollution, two areas which are a focus for Chinese policy makers.
After China, the United States is the next major steel producer and, unlike China, the US has embraced electric arc furnaces to produce steel from scrap steel, hot briquetted iron, and other metallics.
That makes the United States the biggest electric arc furnace user in the world and therefore the country to watch when considering the future prices of scrap and other metallics.
If the US economy picks up and steel production is on the rise, it will inevitably mean that global prices of scrap steel and metallics will rise. This is especially because the US is also the largest exporter of scrap steel. Increased use domestically will have an immediate effect on the global supply.
The recent pickup in the US auto industry has been widely publicized and, with new cars rolling off the line, that is good news for the American steel industry.
But the news elsewhere is less promising. Northern Iron’s chief executive Basil Botha shared some insight regarding the state of the US steel industry during a recent interview with Minesite.com, pointing to another major component of US steel demand which remains on life support.
“When we spoke with Nucor, the biggest steel producer in the US who run 18 electric arc furnaces dotted along the Great Lakes and the South” said Basil, “they were telling us that they were running at 80 to 85 per cent capacity for all rolled products, for cars, fridges, etcetera. But on the rebar side they were only running at about 30 per cent.”
So, while the demand from the consumer and auto sectors is strong, the continued weakness in real estate and construction in the United States puts a serious damper on the steel industry. In effect, the industry is firing on only one cylinder as the construction industry remains stalled.
It’s even got to the point where manufacturers are fighting back collectively against the erosion of the rebar market in the United States. The rebar price has fallen from as high as US$690 a tonne in February to US$645 a tonne now. And even at the February price, margins at American steel mills were tight. So major steel producers Nucor and Gerdau Long Steel North America have dug in their heels and are resisting any further price erosion. That’s prompted a number of other manufactures to follow suit.
For scrap steel and metallics, the price outlook can be tracked in the headlines - if the auto sector is strong and construction sees an improvement, the global prices will respond favourably. In fact, the response is likely to be quite marked, considering the smaller market size when compared to iron ore, and the large component controlled by the United States.
For iron ore, the supply side of the equation is a little more complicated. At present there is a large amount of capacity which is slated to come online, especially from Australia where exports hit a record annualised rate of 592 million tonnes in December, before dropping back to 494 million tonnes in February.
At the same time though, export growth from Brazil has largely flatlined at 275 million tonnes as companies have failed to bring major projects online there.
India has been the most dramatic mover in the iron ore supply equation. Having been a major supplier shipping 81 million tonnes in 2011 and a peak of 119 million tonnes in 2009, Indian producers managed to achieve an annualized rate of only eight million tonnes in the second half of 2012. The massive drop off is a product of government interference in the sector and is likely to be an interesting factor in the supply equation going forward.
Nevertheless, new capacity is expected to come on stream in the near term and, when combined with the general slowdown in China, is expected to spell erosion in the global iron ore price. For scrap and metallics, the big swing factor is US construction, and a turnaround there could spell an uptick in the price.
Source >>>>> www.minesite.com
*****
