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."
Benchmark iron ore managed a second day of gains on Tuesday after a 7% slide last week to lows last seen September 2012.
According to data from the The Steel Index, the import price of 62% iron ore fines at China’s Tianjin port was pegged at $92.50 per tonne, up $0.40 on the day.
Iron ore is down 31% year to date on expectations of a glut on markets just as demand from China, responsible for two-thirds of the 1.2 billion tonne seaborne trade, cools.
Stockpiles of imported iron ore at Chinese ports are at record highs above 110 million tonnes according to industry consultancy Steelhome, up more than 50% from this time last year.
Global supplies of iron ore are set to exceed demand by 175 million tonnes next year as top producers Vale (NYSE:VALE), Rio Tinto (LON:RIO) and BHP Billiton (LON:BHP) continue to increase capacity, Goldman Sachs predicts.
Number two Rio has been on a massive expansion drive even as it cuts back on projects in its other divisions – it is ahead of schedule to reach 290 million tonnes per annum and is targeting 360 million tonnes per year in the longer run.
Almost 9 out of every ten dollars of profit at the diversified Anglo-Australian giant is derived from mining the steelmaking raw material.
Rio CEO Sam Walsh told Bloomberg TV on Tuesday the flood of new supply poses less of a threat to the London-headquartered miner than its peers:
“We are the lowest-cost producer in the world with costs of $20 per ton compared to the price around $92 a ton; I think we’ll be OK. I don’t think we’re going to go down to $80 or else a lot of my friendly competitors are going to disappear.
“I think that $80 is too low, I suspect a level somewhere north of $100 is probably more realistic. We are confident with our projections that as we go forward the expansions that we’re making will be justified, they will be required by the world.”
While Rio is the most aggressive, BHP is also expanding in Australia and is on track to up production at its newest mine Jimblebar to 55 million towards its longer term target of 270 million tonnes per annum.
Vale has been struggling to keep up with the Pilbara producers but the company is nevertheless sticking to its medium term expansion plans to lift its output above 400 million tonnes from the current 300 million tonnes-plus by 2018 as giant projects like S11D in the Carajas complex come on stream.
Ivan Glasenberg, CEO of the the world’s fourth largest miner Glencore, recently criticized the likes of Rio for the rapid expansion of their iron ore businesses which the Swiss-based commodities giant blames for the price weakness and the less than rosy long term outlook for the industry.
Comments
peter smith
RIO, BHP and the like on purpose wind up production, beyond market balance levels, to get rid of competitors. David Rockefeller did the same thing and he wiped out the competition completely.
But from economic point of view we live in different times now and such
actions in the long term will bite them. To achieve the same overall
profit they will have to keep mining more (as increased volume dampens
the price) and thus deplete reserves faster. Who says that those paid ridiculous amount of money make brilliant decisions ? I certainly don’t.