As per a latest report from CNBC iron ore prices will
exhibit an upside potential of $ 17 from current levels. To read more, kindly
visit: http://www.cnbc.com/id/101932339
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| Stackers and reclaimers moving iron ore to rail cars at Rio Tinto's Port Dampier operations in Western Australia's Pilbara region, March 4, 2010. Agence France-Presse/Getty Images |
Why we think prices
will not bounce back?
We assess the prices to continue to decline or to the best stabilize at current low levels due to the following reasons:
China has a steelmaking capacity of 900 million tons. As per recent govt. policy China aims to cut 28.7 million tons which is the largest cut in the last four years. By 2017 it aims to cut 80 million tons of steelmaking capacity
Real Estate in China accounts for two-thirds of global iron ore purchases and 20% of China’s GDP. China Home prices fell 10.5% over first seven month of the year. Analysts believe that every city has an oversupply problem. According to China Real Estate Index System, 31 Chinese cities have excess housing inventories that will take more than three years to work down, after taking into account the amount of residential land sold between 2011 and 2013 and their respective annual housing sales.
We assess the prices to continue to decline or to the best stabilize at current low levels due to the following reasons:
China has a steelmaking capacity of 900 million tons. As per recent govt. policy China aims to cut 28.7 million tons which is the largest cut in the last four years. By 2017 it aims to cut 80 million tons of steelmaking capacity
Real Estate in China accounts for two-thirds of global iron ore purchases and 20% of China’s GDP. China Home prices fell 10.5% over first seven month of the year. Analysts believe that every city has an oversupply problem. According to China Real Estate Index System, 31 Chinese cities have excess housing inventories that will take more than three years to work down, after taking into account the amount of residential land sold between 2011 and 2013 and their respective annual housing sales.
Plus, writers and analysts believe that a cut in iron ore mining will cushion the decline in the commodity price. This might be theoretically right but in real it takes time to increase supplies when economies heat, similarly there cannot be immediate cut in supplies in response to declining demand. There has to be a ‘time lag’ affect.
Vale, Rio Tinto, BHP Billiton and FMG all raised their iron ore production and shipments by over 10% in the first half of 2014. At the same time, Shandong Iron and Steel Group Co. Ltd and China Railway Materials Group Co., Ltd have been successively shipping iron ore from mines they invested in Sierra Leon back to China. In Jan-Jun, China's iron ore imports from Sierra Leon jumped by 4.627 million tonnes YoY to 9.442 million tonnes. Moreover, average prices for imported iron ore were RMB100/tonne lower than those for domestic iron ore, with the former pegged at US$118/dmt and the latter pegged at RMB843.3/wmt (USD 138).
The imported iron ore market will remain bloated in the
second half year, and is under pressures to go upwards amid slow crude steel
output growth and increasing supply.
On Aug 18, 2014, iron ore swaps for Aug, Sept and Oct
delivery fell to US$93.17 (-1.11)/dmt, 92.25 (-1.41)/dmt and US$92(-1.31)/dmt
CFR respectively on the Singapore Exchange. Platts 62% Fe IODEX dropped by
US$0.5/dmt to S$93.25/dmt CFR North China.
