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In reply to: herger on Saturday 19/05/07 08:56pm

The whole iron ore sector will end up in tears


Not sure what you mean. Anyone who has been in the sector for a couple of years won't feel any pain IMO. Sure prices have to come off, but how far?. What a lot of people overlook is that the price of commodities is underpinned by the cost of energy to extract them. That creates a floor. Anyone entering now...that's a bit different.



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Hi Herger,


Some interesting perspectives and stats.


The Oligopoly that has existed within the iron-ore industry does appear to have a few cracks.


China is the key focus imo, that will break the camel's back.

Sinosteel, Jinchuan and other companies have been investing in some of our juniors for that very reason.


2005 - 76% increase

2006 - 19% increase in iron ore.


Last year the iron-ore pricing talks were postponed over and over again due to China's lack of indifference with the Big 3.

Eventually China conceded to the 19% rise. However, they were not happy that they were held to ransom. At the time Sinosteel represented China.


I believe that not only iron-ore is at risk. Copper, Nickel,Uranium juniors would have to be

on their hit list as well.


At this stage, they have vast surpluses just itching to invest into our resources.

Imo we have only seen the tip of the iceberg. They will throw money at the juniors knowing that they will own the resources in 10 - 20 years which will provide enough capacity for them to control the market. They have already shown how they control the world's manufacturing market.


IMO, they will do exactly the same in the resource market.


If that were the case, where would that leave Australia? Well, by that stage we will be extremely prosperous from China's massive investment over the years.


However, we need to prepare for a major change in our future.


Interesting times ahead.


Cheers markco2

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In reply to: Krumbs on Saturday 19/05/07 08:49pm

Hi Krumbs,


How far will prices come off ...... good question. I was listening to the BRR website where the MD of Zinifex was talking about the good times for the zinc industry - and his comment on the zinc price in particular was "when the price of zinc has decoupled from the marginal cost of production you know it's unsustainable" (something alone those lines). I suspect this theme is something of a common occurence in the mining industry - when oversupply hits, costs revert to the "marginal cost of production". I guess this is what you're referring to when you say price is underpinned by the cost of energy to extract them.


Many new entrants are putting out figures of AUD$15-$20 per tonne as their opex figures. If there's more supply than demand for iron ore then perhaps we could see the iron ore price not much above this figure.


One thing's for sure, by now there are distinctly two schools of thoughts on where the iron ore price is going over the near to medium term. The bulls, backed by brokerage analysts' consensus, is that the price will either rise or if it drops, only slightly. The view from the MD of one iron ore hopeful (Sundance) sums it up.


"The global steel industry, particularly in China and India, is forecast to continue to
grow very strongly for at least the next five years and, we expect, well beyond
that. This growth in steel production is driving strong iron ore demand with this
growth outpacing new supply capacity.
For example, China and India are currently forecasting additional steel production
of 300 million tonnes by 2010. This alone will require almost 500 million tonnes
of new iron ore production capacity over the next three years. To put that in
perspective, that is around ten new projects of the scale of Fortescue MetalsÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢
project currently being developed in Western Australia. It is hard to see where this
new supply will come from in this timeframe.
As a consequence, a number of major analysts have recently revised their iron ore
price forecasts. They are now predicting iron ore price increases in 2008 of at least
10%, with probably another 10% in 2009. They are then forecasting steady prices
through to at least 2012. These analysts have recognised the strength of iron ore
demand and the delay in bringing new supply capacity on line, being either
expansions or new projects."


Then there's the more pessimistic view, one seemingly shared by less people. Kerr Neilson appears to be bearish on iron ore, so is the fund manager of the world's largest mining investment fund, Evy Hambro. (Iron ore less attractive than other metals: fund - http://www.reuters.com/article/reutersEdge...070607?sp=true)


I guess in the end it depends on who you believe. The fund managers or the analysts and mining bosses. But overall you could make a pretty strong argument that the bullish forecasts on iron ore prices are understating the risks.......



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In reply to: markco2 on Saturday 19/05/07 09:05pm

Hi marcko2,


I didn't see it that way, it certainly makes sense from the gov't of china's point of view.


If they wanted to break the oligoplies back what better way than to up investments in iron ore and flood production into the market. I suppose the amount they lose from their investment would be recouped many times over in the lower prices the country pays for iron ore. China imported in the order of 300 mt of iron ore last year. They paid $65+/t for a product that costs only $20/t to produce ($10/t if you're RIO/BHP). From this perspective they've been dudded out of $45 x 300mt or $13.5bil. If the rate of imports growth continue as they have been they'll be importing 500mt every year. if prices stay steady they'll be "cheated" out of over $20billion every year.


You're right though, we're living in interesting times indeed. I've been theorising too much - time to sit back and see how it all pans out.

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In reply to: herger on Wednesday 13/06/07 06:34pm

Thanks for your informative posts (and I think you might depreciate yourself a bit too

much in your sign off) But enough p#^@ing in your pocket!

It just seems to me there are quite a few too many industry hard-heads going hammer & tongs for iron ore for there to be too much concern about price expectations eg Kiernan with Aztec & now Territory Resources.

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In reply to: markco2 on Saturday 19/05/07 10:05pm

markco2, their investments in the resources sector are also hedges against sustained high prices in event they cannot win such control, as well as a means of recycling huge trade surpluses.


The reason some analysts favour the bulk commodities over traded base metals is the former is less susceptible to hedge fund activities, i.e. the commodities' prices are tied to term contracts.


herger, in the long term economic theory has it that prices should equilibrate to marginal cost of production, so eventually prices will fall as supply increases in response to present prices being higher than these marginal costs. Energy is a major cost in the production of any metal right from the cost of digging the ore out of the ground through to the refined product. Other major inputs are capital and labour. That oil prices have risen 3-4 fold in recent years means that marginal costs must be higher than they were a few years ago and the floor (marginal price) must reflect that. Well, to my mind we are saying the same thing http://www.sharescene.com/html/emoticons/wink.gif


It takes years to get significant new production on stream and what we have seen in the markets is the result of many years of underinvestment in the sector. I don't see present spot prices being maintained. I think the easy money has been made in the sector. I know it has made for a comfortable retirement for me when I get to 60 (barring serious economic accidents) !!!




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  • 4 weeks later...


Below is a post from yours truly taken from this thread just over a year ago (June 2006)...


Just thought I would re-post it for all after the news from DIO today regarding their (U3O8) JV with CVRD.


Enjoy http://www.sharescene.com/html/emoticons/smile.gif ...........


BRAZILIAN iron ore giant Companhia Vale do Rio Doce is looking at expanding its mining and exploration operations in Australia, which will increase its head-to-head competition with BHP Billiton and Rio Tinto....




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  • 1 month later...

upgrades to iron ore prices...


Broker Goldman Sachs JBWere on Monday forecast that Australian iron ore export prices will increase by 30% during the year to June 30, 2009, following higher spot prices and supply constraints.


With prices already negotiated for fiscal 2008 at 80.42 U.S. cents per dry metric ton unit, analysts Malcolm Southwood and Paul Gray expect a rise to 104.55 cents the following year, saying "transportation bottlenecks continue to stretch global supply chains to their limits and raw material suppliers are unable to meet customer requirements."


This has led to upgrades in GSJBW's stock valuations by 2.9% for BHP Billiton Ltd. (BHP.AU), 5.1% for Rio Tinto Ltd. (RIO.AU) and 17.3% for Portman Ltd. (PMM.AU).





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