CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
The price of iron ore gained for the third day in a row on Wednesday with the Northern China benchmark import price adding 2.4% to $59.90 per dry metric tonne (62% Fe CFR Tianjin port) according to data supplied by The Steel Index.
On the Dalian Commodity Exchange iron ore futures soared as much as 6% to $66 a tonne, reaching the exchange’s up limit for the second day in a row. The price advance for the week is 9.8% and iron ore is the top performing commodity for 2016 with a 39.6% rise year to date and a 62% surge from near-decade lows reached mid-December.
China is responsible for producing nearly half the world’s steel and consume more than 70% of the seaborne trade. Benchmark Shanghai rebar used in construction hit the highest level since May 6 on Wednesday while the Steel Index’s pan-Asian import price of hot rolled steel is up an astonishing 45% since late February weeks to a 15-month high.
The Gina Rinehart mine has brought forward ramp-up plans and now expects to be producing at full annualized capacity of 55m tonnes by the end of this year
The latest leg up for iron ore came after Chinese imports continued to impress with March cargoes of 85.8 million tonnes, up 16.5% from February. For the first quarter imports are up 6.5% year on year despite weather-related disruptions at Port Hedland in West Australia, the world’s busiest dry bulk terminal.
In December imports reached a record 96 million tonnes and cargoes for the whole of 2015 also set a new record of 952.7 million tonnes, but based on Q1 numbers, 2016 could turn out to be an even better year.
Domestic Chinese producers which struggle with low grades and high production costs have been gradually pushed out of the market and replaced by imports. Imports now represent nearly four-fifths of Chinese steelmakers’ iron ore supply. Shipments from Port Hedland set a new record in March of 39.5 million tonnes, 32.6 million tonnes of which was destined for China.
The country’s miners produced some 350 million – 400 million tonnes a year on a 62% Fe-basis in 2014, although reliable stats are lacking (this figure is calculated working backwards from pig iron production). According to some estimates domestic output has now fallen below 200 million tonnes with further declines likely.
It’s not all good news however, surging imports have also seen stockpiles at Chinese ports grow indicating that end-user demand is not as robust as the import data suggests. Port inventories have climbed back above 90 million tonnes, up from 75 million tonnes during summer 2015. Stocks reached a peak of 111 million tonnes mid-year 2014.
Then there’s the threat of new supply which continues to flood the market.
Citigroup’s analysts expect around an additional 75 million tonnes of iron ore this year to be shipped out of Australia, more than a third of which would come from Roy Hill. The Gina Rinehart mine has brought forward ramp-up plans and now expects to be producing at full annualized capacity of 55 million tonnes by the end of this year.
The investment bank also forecasts 16 million tonnes of new iron ore supply from Brazil this year. And that’s even before Vale’s flagship S11D project in the Carajas complex comes on stream. The world’s top producer said the giant mine with annual capacity of more than 90 million tonnes is 80% complete and is expected to start shipping by the end of 2016.
Comments
Altaf
When the big 3 + Gina and others focusing on low cost mines and exportable surplus at its highest, if the prices are going up, I see only one explanation. May be the efforts of the Big three to flood the market to flush out high cost Chinese miners is slowly starting to work. With less domestic supply, they are looking for external sources and in their rush to fill their reserves, they are pushing up prices. May be, may be Sam Walsh was right in his strategy.
May be this fits his famous “Case study” argument.