Remember as price falls China domestic production slows because it has marginal costs anywhere from 120-180/ton as per various articles- the big 3 have been absolutely insane in their insatiable greed for larger market share-shooting themselves in the foot in the long run
many articles have said chinese domestic marginal costs set a floor for iron prices-and that is logical but other manipulative forces have impacted price below those levels for surprisingly long periods of time w the aid of speculators
COLUMN-Global iron ore miners can still win as China demand slows: Clyde Russell
Tue May 13, 2014 3:03am EDT
--Clyde Russell is a Reuters columnist. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, May 13 (Reuters) - Can Chinese steelmakers and global iron ore miners both be right about the future, even though they appear diametrically opposed?
The Chinese steel industry says it has stopped expanding and is facing major problems amid a slowing economy.
Global iron ore miners are boosting seaborne supplies of the steelmaking ingredient by about 20 percent over the next two years and believe China will buy most of the extra cargoes.
It appears that both steelmakers and miners can't be right, but as counterintuitive as it sounds, steel capacity can stop increasing even as iron ore imports experience robust growth.
Take the Chinese steel industry first.
"Companies are no longer expanding capacity," Wang Xiaoqi, vice president of the China Iron and Steel Association (CISA) told an industry conference in Singapore last week.
In fact, some older and inefficient plants are being closed, with 28.7 million tonnes of annual capacity slated to end operations this year.
As CISA points out, however, China will still have significant surplus capacity even as outdated and polluting plants are shut down or idled.
China's steel output was a record 779 million tonnes in 2013 and CISA forecasts it will reach 810 million tonnes this year, growth of about 4 percent.
But the Chinese steel industry still has close to another 200 million tonnes of capacity on top of that, meaning it could increase production substantially in the next few years without any additional investment.
And even if Beijing's war on pollution proves effective, China will still likely suffer from excess steel capacity for years to come.
Northern Hebei province, China's largest steelmaking region, announced plans last September to cut 60 million tonnes of annual capacity by 2017 as part of efforts to tackle pollution and the sector's surplus.
That would, if achieved, still leave more than 140 million tonnes of spare capacity at 2014 production levels, meaning Chinese steel output could grow as much as 4 percent per annum for the next four years before any constraints emerge.
Whether the Chinese economy would need this much steel is debateable, given the slowdown in residential construction, which accounts for about a quarter of steel demand.
The shift in the economy to lower, consumer-led growth rates is likely to cause steel demand growth to ease as well, although given the likely pace of urbanisation over the next decade, it's unlikely steel consumption will decline.
This expected modest growth in steel demand probably will not be able to absorb all the extra iron ore supply coming to the market in the next few years.
PRICE IS KEY TO FUTURE IRON ORE IMPORT GROWTH
The annual global seaborne iron ore market is about 1.2 billion tonnes, with China accounting for 820 million tonnes, or about 68 percent, in 2013.
Up until recently the market has been in deficit, helping to explain why spot Asian iron ore prices .IO62-CNI=SI went from $59.60 a tonne when Steel Index begin compiling data in November 2008, to as high as $191.90 a tonne in February 2011.
Prices have been more modest since, falling from end-2013 values of around $140 a tonne as increased supplies hit the market and questions have been raised over Chinese demand.
The decline so far this year has been more than 23 percent to $103 a tonne on Monday.
Global miners will add a total of 240 million tonnes of iron ore output this year and next, Claudio Alves, global director for marketing and sales at top iron ore miner Vale, said at the Singapore conference last week.
Brazil's Vale is lifting its annual output to 450 million tonnes after 2018 from 306 million tonnes last year, joining Australian giants BHP Billiton and Rio Tinto in boosting supply.
The increase in supply begs the question as to whether the global miners and smaller competitors have got it wrong and China won't be able to absorb the additional ore.
On the surface it would seem they have miscalculated somewhere. Even optimistic scenarios for Chinese steel output growth wouldn't justify the iron ore capacity under construction or in the final stages of planning.
But the one key factor that may change everything is price.
Chinese domestic iron ore output meets about a quarter of the domestic steel industry's requirements.
While Chinese mines produced 1.45 billion tonnes of iron ore in 2013, this is of low quality, with an iron content of about 22 percent. Brazilian and Australian ore is closer to 60 percent.
This makes Chinese ore expensive to mine and more polluting to use, and increasingly uncompetitive if the spot price drops below $100 a tonne.
Global miners are basically gambling that China will be happy to substitute imported ore for domestic ore in coming years. The bet may pay off, but there are caveats.
First, the spot price won't be able to rise to levels that make Chinese domestic output competitive, currently this is around $120 a tonne. If the price falls into a stable $80-$100 a tonne range, this would be positive for import growth and negative for Chinese domestic ore output.
Second, the Chinese must continue to act on pollution, as this will encourage the use of higher grade iron ore, given that it uses less coal when made into pig iron and steel.
Lastly, global miners need unfettered access to China's iron ore market, and they must hope that the authorities are willing to see local mines close and reliance on imports increase. (Editing by Tom Hogue)
many articles have said chinese domestic marginal costs set a floor for iron prices-and that is logical but other manipulative forces have impacted price below those levels for surprisingly long periods of time w the aid of speculators
COLUMN-Global iron ore miners can still win as China demand slows: Clyde Russell
Tue May 13, 2014 3:03am EDT
--Clyde Russell is a Reuters columnist. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, May 13 (Reuters) - Can Chinese steelmakers and global iron ore miners both be right about the future, even though they appear diametrically opposed?
The Chinese steel industry says it has stopped expanding and is facing major problems amid a slowing economy.
Global iron ore miners are boosting seaborne supplies of the steelmaking ingredient by about 20 percent over the next two years and believe China will buy most of the extra cargoes.
It appears that both steelmakers and miners can't be right, but as counterintuitive as it sounds, steel capacity can stop increasing even as iron ore imports experience robust growth.
Take the Chinese steel industry first.
"Companies are no longer expanding capacity," Wang Xiaoqi, vice president of the China Iron and Steel Association (CISA) told an industry conference in Singapore last week.
In fact, some older and inefficient plants are being closed, with 28.7 million tonnes of annual capacity slated to end operations this year.
As CISA points out, however, China will still have significant surplus capacity even as outdated and polluting plants are shut down or idled.
China's steel output was a record 779 million tonnes in 2013 and CISA forecasts it will reach 810 million tonnes this year, growth of about 4 percent.
But the Chinese steel industry still has close to another 200 million tonnes of capacity on top of that, meaning it could increase production substantially in the next few years without any additional investment.
And even if Beijing's war on pollution proves effective, China will still likely suffer from excess steel capacity for years to come.
Northern Hebei province, China's largest steelmaking region, announced plans last September to cut 60 million tonnes of annual capacity by 2017 as part of efforts to tackle pollution and the sector's surplus.
That would, if achieved, still leave more than 140 million tonnes of spare capacity at 2014 production levels, meaning Chinese steel output could grow as much as 4 percent per annum for the next four years before any constraints emerge.
Whether the Chinese economy would need this much steel is debateable, given the slowdown in residential construction, which accounts for about a quarter of steel demand.
The shift in the economy to lower, consumer-led growth rates is likely to cause steel demand growth to ease as well, although given the likely pace of urbanisation over the next decade, it's unlikely steel consumption will decline.
This expected modest growth in steel demand probably will not be able to absorb all the extra iron ore supply coming to the market in the next few years.
PRICE IS KEY TO FUTURE IRON ORE IMPORT GROWTH
The annual global seaborne iron ore market is about 1.2 billion tonnes, with China accounting for 820 million tonnes, or about 68 percent, in 2013.
Up until recently the market has been in deficit, helping to explain why spot Asian iron ore prices .IO62-CNI=SI went from $59.60 a tonne when Steel Index begin compiling data in November 2008, to as high as $191.90 a tonne in February 2011.
Prices have been more modest since, falling from end-2013 values of around $140 a tonne as increased supplies hit the market and questions have been raised over Chinese demand.
The decline so far this year has been more than 23 percent to $103 a tonne on Monday.
Global miners will add a total of 240 million tonnes of iron ore output this year and next, Claudio Alves, global director for marketing and sales at top iron ore miner Vale, said at the Singapore conference last week.
Brazil's Vale is lifting its annual output to 450 million tonnes after 2018 from 306 million tonnes last year, joining Australian giants BHP Billiton and Rio Tinto in boosting supply.
The increase in supply begs the question as to whether the global miners and smaller competitors have got it wrong and China won't be able to absorb the additional ore.
On the surface it would seem they have miscalculated somewhere. Even optimistic scenarios for Chinese steel output growth wouldn't justify the iron ore capacity under construction or in the final stages of planning.
But the one key factor that may change everything is price.
Chinese domestic iron ore output meets about a quarter of the domestic steel industry's requirements.
While Chinese mines produced 1.45 billion tonnes of iron ore in 2013, this is of low quality, with an iron content of about 22 percent. Brazilian and Australian ore is closer to 60 percent.
This makes Chinese ore expensive to mine and more polluting to use, and increasingly uncompetitive if the spot price drops below $100 a tonne.
Global miners are basically gambling that China will be happy to substitute imported ore for domestic ore in coming years. The bet may pay off, but there are caveats.
First, the spot price won't be able to rise to levels that make Chinese domestic output competitive, currently this is around $120 a tonne. If the price falls into a stable $80-$100 a tonne range, this would be positive for import growth and negative for Chinese domestic ore output.
Second, the Chinese must continue to act on pollution, as this will encourage the use of higher grade iron ore, given that it uses less coal when made into pig iron and steel.
Lastly, global miners need unfettered access to China's iron ore market, and they must hope that the authorities are willing to see local mines close and reliance on imports increase. (Editing by Tom Hogue)
