Coal news and updates

The price of steelmaking ingredient iron ore, a major source of profit for some of the world’s biggest mining companies, has fallen below $60 a tonne on concern demand will suffer from an environmental crackdown in China.

 

Beijing has ordered heavily polluting industries that operate in the smog prone provinces of Hebei, Shanxi and Shandong to reduce output and curb emissions over the winter heating season, a period that runs from October to March.

 

Mills have started to cut steel production in some of the big cities in these areas, said traders, curbing demand for iron ore and other materials needed to make steel such as coking coal.

 

At the same time supplies from Australia, the world’s biggest producer of iron ore, have increased, further pressuring prices.

 

“We think 30m tonnes of [Chinese] steel production will be affected over the winter heating period,” said Serafino Capoferri, an analyst Macquarie, adding that was equivalent to about 48m tonnes of imported iron ore demand.

 

The impact could be less pronounced if mills outside the restricted zone in China raise production or there is greater consumption of scrap. But even then it would still weigh on the market. Deutsche Bank estimates 30m tonnes of iron ore demand would be affected in this scenario.

 

On Tuesday, benchmark Australian iron ore fines fell 4.1 per cent to a three-month low of $59.1 a tonne, according to a price assessment by The Steel Index, taking losses since the start of September to more than 20 per cent.

 

Over the past month, there has been a strong increase in supplies from Australia as a major new mine called Roy Hill has ramped up output and Rio Tinto has increased volumes in an effort to meet a full-year production target of 330m tonnes.

 

Based on vessel movements in and out of ports, UBS reckons Rio shipped 84.6m tonnes of ore from its mines in Western Australia in the three months to September, a rise of almost 9 per cent on the previous quarter.

 

With supplies expected to remain robust over the rest of the quarter, prices could remain below $60 a tonne, said traders. However, the affect on profits at major mining houses will vary according to type of ore they produce.

 

The recent restriction on sintering in China — the highly polluting process that turns iron ore fines into a material that can be used in blast furnaces — has seen premiums for “direct charge” material such as lump and pellets spike sharply higher. That is a boon for companies such as Brazil’s Vale or Anglo American.

 

“We calculate that at current prices that Anglo’s Kumba mine is generating $5 a tonne more in margin that the traditional lowest-cost Australian mines at Rio or BHP Billiton,” said Tyler Broda, analyst at RBC Capital.

 

That fact has helped support Anglo’s share price, which has risen almost 4 per cent over the past month, outperforming its peers and the iron ore price.

 

 

Source: Financial Times