“Panic is building on panic”: Iron ore hit by Chinese steel doldrums amid widespread anxiety about the outlook for demand, and concerns about overcapacity in the industry

May 29, 2013 8:42 pm

Iron ore hit by Chinese steel doldrums

By Jack Farchy in London

Iron ore prices tumbled to a seven-month low on Wednesday as negativity spread through the Chinese steel industry.

Analysts said that both traders and steelmakers in China, which accounts for 60 per cent of global seaborne iron ore imports, had been selling down stocks amid widespread anxiety about the outlook for demand, and concerns about overcapacity in the industry.

“Panic is building on panic,” said Melinda Moore, bulk commodity strategist at Standard Bank in London.The price of the benchmark grade of iron ore on Wednesday tumbled 4.2 per cent to $112.90 a tonne, according to The Steel Index. That is the lowest since October, down 8 per cent this week and 20 per cent in the past month.

The IMF lowered its 2013 growth forecast for China on Wednesday, from 8 per cent to 7.75 per cent, citing weak global conditions and lacklustre Chinese exports.

Ms Moore said that the fall in steel prices had led iron ore’s slide. Shanghai Futures Exchange August rebar, a steel benchmark, is down 5.8 per cent since the start of last week and was approaching last year’s low of Rmb3,291 per tonne.

“Unfortunately, steel inventories have been too high, relative to underlying demand growth,” she said. “This has caused the dramatic fallout in steel prices over the past few weeks. Iron ore prices have fallen in tandem as mills scramble to maintain their limited profit margins.”


The slide in iron ore and steel prices has big implications for two of the world’s largest heavy industries: mining and steelmaking. In particular, some of the world’s largest miners have become very reliant on iron ore to deliver their profits in recent years. Iron ore accounts for between 50 and 80 per cent of operating profits for BHP BillitonRio Tinto,Vale and Anglo American.

The slide in prices is also causing pain in the steel industry. The China Iron and Steel Association, which represents the country’s steel mills, on Wednesday offered a bleak outlook for the rest of the year.

“I don’t expect trends to change in the next few months because capacity is too high and industry consolidation rates are too low,” Wang Xiaoqi, deputy chairman, told a conference in Shanghai, according to Reuters. “I predict steel prices are going to fall more deeply this year.”


Atlas to decide on Pilbara mine as iron ore prices hit seven-month low


From:Dow Jones

May 30, 2013 9:35AM

ATLAS Iron says that it aims to decide whether to build a new mine in the Pilbara region by the end of next month, a move that comes against a backdrop of iron ore prices at a seven-month low.

Perth-based Atlas, which is aiming to produce 15 million tonnes of iron ore a year by the end of 2015, said in a statement it has received final approvals to build the Mount Webber mine from state and federal government environment ministers.

Iron ore prices fell to $US112.90 a tonne yesterday, their lowest level since October 16, as traders fretted about weak steel demand in China and the country’s future imports of the steelmaking material.

BHP Billiton, the world’s biggest mining company by value, yesterday said a jump in scrap steel supplies in coming years would limit China’s incremental appetite for iron ore.

Atlas aims to produce 3 million tonnes of iron ore a year from the Mount Webber mine in its initial phase, potentially rising to 6 million tonnes later. Output is targeted to begin in the first half of 2014.

The company said production is on track to hit an annual rate of 10 million tonnes of iron ore during the July-September period, which is the first quarter of its next fiscal year.

New production will largely come from the Abydos mine in the northern area of the Pilbara, which Atlas said was being built on budget.

The company added that it expects to ship 2.2 million tonnes of iron ore in the three months to June 30, the final quarter of the current fiscal year.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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