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Iron Ore


theflasherman

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this post is probably 2 years early , so somebody will have to remind me to re-post on the

18 june 2008.

 

If graft & corruption was an offically recognized component of a country"s GDP ,

then china & these african states would have productivity in the 1000"s%.

These countries would have an economy worth $20 trillion GDP.

I have been doing a bit of googling on the newswires about this iron ore resource

that china now has exclusive rights to. The CVRD consortium (as per article) has been given the arse. As per article , it is a billion tonnes @ 60% , & has been described in other articles i have read as being one of the last known high grade deposits anywhere in the world. The logistical diffculties of the project are covered in the article & shows how

desperate the chinese are to avoid buying iron ore off the CVRD/BHP/RIO cartel.

China is expected to import 300-320 mill tonnes this yr. So the billion tonne resource is equal to only a 3 year import supply.

I assume they would want to extract 50-100 miil tonnes a yr , & more than likely increase their reserve base thru exploration.

Delivering ore before 2010 is their plan & i think they will work at a frantic pace to get it

into production.

 

http://www.industryweek.com/ReadArticle.aspx?ArticleID=12088

 

So thats why this post is 2 years too early. Iron ore prices should hold up next year or even into the 2008 year , but after that contract prices will plummet i believe.

The chinese have such a hatred of the CVRD/BHP/RIO cartel that if they discovered a mineral resource at the bottom of the pacific ocean they would work out a way to mine it.

They might even raise the Titanic for its iron ore scrap value.

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  • 3 weeks later...
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  • 4 months later...

Looks like iron ore is stronger than most commentators think. This really favours this juniors but also suggests BHP/RIO could be in for broker revaluations. Many also thinking copper may have bottomed and zinc stocks in LME warehouse could run out by Christmas.

 

http://www.mineweb.net/co_releases/454303.htm

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  • 5 weeks later...

BRAZIL CVRD

SAO PAULO, Dec 21 Reuters - Brazilian mining giant CVRD said on Thursday it had agreed to a modest iron ore price increase for 2007 with Baosteel, reflecting China's growing clout in the global mining and steel industries.

CVRD, the world's largest producer and exporter of iron ore, said the two companies had agreed to a 9.5 percent price rise for next year. The increase was in line with market expectations and compared with a 19 percent rise in 2006 and a 71.5 percent hike in 2005.

The agreement marked the first time that a Chinese steelmaker has led the way in annual price negotiations with global mining heavyweights, the result of China's emergence as the world's largest consumer of iron ore.

It also contrasted sharply with last year's talks, which dragged on for almost eight months as Chinese steelmakers held out for a smaller price increase.

The unusually speedy end to the negotiations prompted some analysts to predict that Chinese steel producers will raise prices soon.

"Baosteel had an incentive to settle prices soon," Rodrigo Barros, a steel analyst at Unibanco in Sao Paulo, said in a research note. "The increase is likely to increase iron ore spot prices further and put more pressure on profitability of the small Chinese steel producers."

Iron ore is a heavily consolidated industry, with CVRD, BHP Billiton Ltd. and Rio Tinto Ltd. accounting for more than 70 percent of the world's seaborne trade in ore -- the main ingredient in steel.

Because iron ore isn't a pure commodity -- it occurs in different sizes and chemical compositions -- it isn't traded on metal exchanges. Instead, prices are set through a long-standing system under which the first company to strike a deal with a major client is followed by all others.

In the past, European and Japanese steelmakers led the way in price negotiations. But last year China took a more aggressive role in the talks, forcing the negotiations to drag on for several months.

The deadline for the talks is normally April 1, which is when the new prices go into effect.

The price agreement was announced as China is reportedly preparing to limit the number of companies allowed to import iron ore, according to an official at the country's Iron and Steel Association.

CVRD's shares were up 1.05 percent at 53.68 reais in early trading in Sao Paulo after the announcement, outperforming the broader market.

REUTERS

22-12 0928

 

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  • 4 months later...

Looks like very good times for those in the iron ore game...

 

http://www.bloomberg.com/apps/news?pid=206...fer=commodities

 

Capesize Ship Rates Rise to Record on China's Iron Ore Demand

 

By Will Kennedy

 

April 26 (Bloomberg) -- The cost of hiring Capesize bulkers, the largest type of ship that carries iron ore and coal, rose to a record on China's demand for raw materials.

 

The Baltic Capesize Index, a measure of rates on routes around the world, rose 1.8 percent yesterday to 8,953, passing the high of 8,911 reached on Dec. 7, 2004. The index has surged 50 percent this year. Capesize vessels carry as much as 175,000 tons of coal or iron ore.

 

China's imports of iron ore, the most shipped bulk commodity, rose 24 percent in the first quarter, RBC Capital Markets said on April 23. The country's steel mills have boosted output to meet demand from carmakers and builders as the economy grew at a faster-than-expected 11.1 percent in the first quarter.

 

``Rates for most trades now stand at an all-time high,'' Oslo-based shipbroker Fearnleys said in its weekly note to clients yesterday. ``The Pacific, in particular, has been extremely active.''

 

The average daily rate to hire a Capesize ship rose to $104,035, the Baltic Exchange said. OceanFreight Inc., a dry-bulk shipping company seeking to sell shares in New York, said in its April 24 prospectus that the daily operating cost of its Capesize bulker was $7,900 a day.

 

A delay in the shipments of some iron ore cargoes from Brazil, home to Cia. Vale do Rio Doce, the world's largest iron ore exporter, may cause rates to fall over the next week, Fearnleys said.

 

``The market may seem due for a correction after last week's strong performance,'' the note said.

 

The cost of shipping a ton of iron ore from Tubarao in Brazil to China stands at $49.73, according to the London-based Baltic Exchange.

 

Ship rates have risen this year after India introduced a new tax on iron-ore exports, prompting China, the world's largest steelmaker, to travel longer distances to source the material, cutting the number of vessels available for hire.

 

The Baltic Dry Index, which measures shipping rates across different ship sizes, rose 1.5 percent yesterday to 6,122. The index reached a record 6,208 on Dec. 6, 2004.

 

 

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  • 2 weeks later...

Hi flash,

 

Good times indeed, but I wonder if they will last?

 

I've been doing a bit of "google" research lately on iron ore and from what I've seen things don't look too pretty for aspiring juniors.

 

First, supply:

 

The "big 3" have all planned very large production increases. Total production from the big 3 alone, we're looking at over a billion tonnes.

 

300mt+ from Rio Tinto (current production under 200mtpa)

 

"Rio floats 300m-tonne ore target" - 27/04/2007

http://www.theaustralian.news.com.au/story...322-643,00.html

 

300mt from BHP: (current production under 200mpta)

 

"DJ BHP Billiton Mulls Trebling Iron Ore Capacity To 300M Tons" - 1/03/2007

http://www.zibb.com/article/487377/DJ+BHP+...ty+To+300M+Tons

 

450mt from CVRD: (up from 300mtpa currently)

 

"Brazil's CVRD sees iron ore production of 450 million tons a year by 2011" 5/5/2007

 

QUOTE
SAO PAULO, Brazil (AP) - Brazilian mining giant CVRD said Friday it expects its annual production of iron ore -- the raw material for steel -- to reach to 450 million metric tons (496 million tons) within four years to meet rising global demand.

The output would represent about a 70 percent increase over the company's iron ore production last year of 264 million metric tons (291 million tons).

Companhia Vale do Rio Doce SA expects to produce some 300 million metric tons (331 million tons) of iron ore in 2007, rising to about 330 million metric tons (364 million tons) in 2008.

"We believe that CVRD has the potential to produce 450 million metric tons of iron ore by 2011," CVRD President Roger Agnelli said during a Webcast on the company's record first-quarter earnings results. "The market for this level of production exists, and our clients are counting on us to meet their needs."

On Thursday, CVRD reported profits soared 131 percent in the first quarter, boosted by a major acquisition and skyrocketing international prices for iron ore and nickel.

Global iron ore demand continues to be heated because of China's voracious appetite for commodities to fuel its expanding economy, CVRD finance chief Fabio Barbosa said. And the demand should grow in coming years.

Barbosa said CVRD expects the transoceanic iron ore market to reach almost 1 billion metric tons (1.1 billion tons) a year by 2010.

CVRD is well-positioned to take advantage of the market's current "supercycle," with huge mineral reserves and low operating costs, Agnelli said.

Last week, the company said it planned to spend US$7.35 billion (ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’‚¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¬5.4 billion) this year on capital investment and boost research and development to expand iron ore production, especially at the huge Carajas mining complex in the Amazon state of Para.

 

Now contrast this 1 billion tonne plus supply from expected demand. CVRD expects a little under 1 billion tonnes demand by 2010. Another iron ore producer, Sesa Goa of india, expects 800-something tonnes. This graph is from a presentation I downloaded from their website at http://www.sesagoa.com/Pdf/AnalystmeetNov06.pdf

 

http://i8.photobucket.com/albums/a12/ironclad22/iron_ore.jpg

 

All in all, it begs the question: where will this leave room for all the wannabe iron ore players? There's maybe 20 to 30 companies exploring and developing iron ore deposits right now. Some of them are throwing really big numbers, e.g. FMG 45 mpta (eventually 200mtpta+), CFE 15 mpta, GBG 10mpta, MMX 25mpta, etc etc.

 

You'd have to wonder with these sorts of volumes the big 3 are putting out, whether there'll be space even for existing producers to make good money, e.g. PMM with 8 mpta, Kumba with 15mpta.

 

My theory is the big 3 are seeing their oligopoly threatened and are taking steps to protect it. If they bring on enough supply to bring down prices to say $20/t all the existing competitors would vanish overnight - but they'll still be making huge profits. The price of iron ore may be $65/t now, if BHP trebles its production it can still sustain its current record profit levels with ore at $20/t.

 

Regardless of how things turn out, with the projected levels of supply put out by the big 3, and the projected levels of demand around the 2009/2010 timeframe it doesn't leave much room at all for new entrants into the market - the same time when they're expected to come online.

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Also came across this slide, from a recent Rio Tinto Iron Ore investor presentation (http://www.riotinto.com/documents/Alan_Smith_CIM_Canada_2_May_2007.pdf)

 

http://i8.photobucket.com/albums/a12/ironclad22/iron_ore2.jpg

 

Crikey 4 years for a grinding mill.

 

I've wondered why the largest russian iron ore company was buying MGX shares when they had vast untapped reserves of iron ore of their own, maybe that's why.

 

Must be worrying for many of the iron ore hopefuls.

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Getting spammy tonight, apologies. But the more I read about the situation the less easy I feel about investing in these iron ore junior hopefuls.

 

A quote from a link in flah's post:

 

"International iron-ore trade also reached a new record level at 719-million tons, up 12 % compared to 2004.

 

Australia is the leading exporter at 239-million tons, followed by Brazil at 225-million tons and India at 81-million tons, the report states."

 

with these kind of numbers you could see why it was easy to accomodate a number of smaller players on the iron ore scene.

 

but we're talking massive, absolutely massive increases in the production capacity of the majors. I don't believe the significance of these expansions have been fully appreciated by the financial press.

 

Rio Tinto on track for 210mpta by 2009, CVRD 450mpta by 2010. These two figures alone - these two companies alone, could supply the entire traded iron ore market in 2004. The last figure is almost <i> double </i> the entire iron ore production in australia (since most of it is exported).

 

Not easy to get one's head around the magnitude of these numbers.

 

-----

 

I've also just gone over the other posts on this thread. I guess I'm a little late but I'll add what I've learnt the last couple of years. As far as I know only the Pilbara and Carajas regions of Oz. and Brazil respectively hosts multiple very large high grade deposits. I remember reading somewhere that Rio Tinto had 13,000 mt (13 billion tonnes) of iron ore in its pilbara tenements, in the resource category. These two are I think the only places on Earth where high grade iron ore exists in such abundance, and also explains why Rio/Bhp/Cvrd can at the tip of a hat create a veritable tsunami wave of iron ore production. .....

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  • 2 weeks later...

Story from the Australian, dated 2 May 2007, titled "Leave emotion out of it"

 

http://www.theaustralian.news.com.au/story...5001942,00.html

 

Interesting extract:

 

QUOTE
"Understanding the psychology of the investor versus the crowd is paramount to understanding markets, Platinum Asset Management managing director Kerr Neilson says. "We anchor and frame ourselves in the past, so we underestimate what can be. When the price of oil goes through the roof, we cannot imagine it back again at $US16-17 per barrel. That led to the current underinvestment in resources. Now the boom in metal prices is leading to overinvestment, such as in iron ore production."

 

Kerr Neilson is almost superhuman in the way he gets things right most the time. If anyone's been following Neilson for any period of time they'll know he is someone who knows what he's talking about.

 

When he says there's overinvestment in iron ore production, for me it means it's game over. The whole iron ore sector will end up in tears.

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