Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The benchmark CFR import price of 62% iron ore fines at China’s Tianjin extended its winning streak, jumping to $158 on Tuesday, just shy of a 15-month high.
The steelmaking ingredient has been boosted by better profitability at Chinese steelmakers and a draw down of inventory at the country’s ports.
Stockpiles of iron ore fell to a 3-year low this week of 66.8 million tonnes, down from highs above 100 million tonnes last year.
Justin Smirk, senior economist at Westpac Banking Corp in Sydney told Bloomberg prices should go higher from here:
“We’ve still got a target of $170 to be hit sometime before the end of the June quarter, but it could be quite a volatile range,” he said by phone today. “We have to see how the demand side kicks in, with restocking and rebuilding inventories. But we also need to see how the Chinese supply side is responding to these high prices.”
The move higher came despite news on Tuesday that Chinese local authorities have moved to cool down the resurgent housing sector.
Today’s announcement of tighter lending rules for home loans could be the first of further controls on the country’s rampant construction sector which has been fuelled by local government lending.
A top Chinese bank recently sounded the alarm about “impulsive” local governments over-investing in the name of urbanization, calling local government debt – estimated at 10 trillion yuan or roughly $1.6 trillion – a time bomb for the Chinese economy.
Any slowdown of China’s massive infrastructure build-out – the country consumes more than 40% of the world’s copper, 60% of its iron ore, is by far the biggest importer of coal and almost produces more steel than the rest of the world combined – could have a huge impact on the profitability of mining and metals companies.
