Iron ore price rises on firmer steel outlook, but trade tensions cap gains
Lower Chinese steel product inventory driven by robust exports also supported iron ore prices above $100/t.
The world’s number one steel producer by a large margin ArcelorMittal (NYSE:MT) fell more than 6% in premarket trading after reporting disappointing second quarter earnings and cutting its full year profit estimate by some $1 billion.
Luxembourg-based ArcelorMittal, which forges about 6% of world steel and is a major iron ore producer, said 2014 core earnings would total closer to $7 billion, below a previous forecast of roughly $8 billion, reflecting a probable average iron ore price of $105 a tonne for this year compared to earlier projections of $120.
“The guidance cut is driven by mining. Even if no-one was expecting $8 billion, the new guidance appears a notch more cautious than the market had expected,” said Commerzbank analyst Ingo Schachel according to Reuters.
ArcelorMittal also announced the acquisition of a 56.5% stake in Guinea’s Mount Nimba iron ore project which is close to an existing ArcelorMittal mine, buying out shareholders BHP Billiton and Areva for an undisclosed sum.
The deposit is high quality with 935 million tonnes of direct shipping ore (DSO) at an average grade of 63.5% iron content.
BHP, the world’s third largest iron ore miner, has been trying to offload Nimba for the better part of two years. Newmont Mining is keeping its 43% stake in the project, but has an option to up it to 50%.
Nasdaq reports the deal is contingent upon the Guinean government granting permission for the company to export the steelmaking raw material via the deep sea port on the coast of neighbour Liberia to reduce costs:
Aditya Mittal, ArcelorMittal’s chief financial officer, declined to comment on the price tag or how long it might take to close the transaction but said the approval to ship iron ore through Liberia was “critical” to the transaction.
He also said it was too early to discuss any project details such as development cost or production capacity.
Glencore (LON:GLEN) and ArcelorMittal are also said to be seeking a stake in the southern portion of Guinea’s Simandou, the world’s largest untapped iron-ore deposit, which boasts similar quality ore to that of Nimba.
Rio Tinto (LON:RIO) is developing the northern part of Simandou, but as part of a near $20 billion agreement with the government of the West African nation will build a 670km long railway to ship the ore via a new port near the capital Conakry, even though Liberia would be also be a much cheaper option for that project.
