Where iron-ore will find its floor, Kumba says more supply than buy
As South Africa’s largest iron-ore producer reports that there is currently more iron-ore supply than iron-ore demand – see page 14 of this edition of Mining Weekly – analysts are trying to work out where the ferrous metal’s price will find its lowest point.
Also on page 14, read of the contention that iron-ore is likely to find a floor at $120/t as Chinese steelmakers replenish stockpiles, against earlier expectation that the floor could be as low as $95/t.
That is the view of IG Markets institutional dealer Chris Weston, juxtaposed with the comment of Kumba Iron Ore CEO Chris Griffith that iron-ore prices will probably soften further from their $40/t position in the short term.
Griffith tells Mining Weekly in a video interview that with more supply than buy, prices are bound to moderate.
But that has to be contextualised against the background of the spot price of iron-ore in China soaring to unprecedentedly heady heights in September – an all-time record high of $180/t.
Few, if any, expected it to be able to hold itself at that level for long, but the sharpness of the price fall in early November to $116/t also took some by surprise.
The steelmaking ingredient tumbled 31% in October, before rallying 25% to $147.60 on November 17.
At the time of going to press, it had again fallen, to $140/t.
Prices will not decline below $120/t next year, “even in a stress scenario”, is the Bloomberg-reported view of Weston.
This is because lower levels are seen as having the potential effect of putting some Chinese and international suppliers out of business, Vale, the world’s largest producer, opines.
The bottom for prices seen by Vale is “about right”, said Weston, who specialises in analysing BHP Billiton and Rio Tinto.
He expects Chinese steel mills will probably restock in the lead-up to winter, using any more price dips to do so.
China usually begins restocking of bulk commodities in November before ramping up production in the New Year, said UBS.
CEO Marius Kloppers reported that BHP Billiton was seeing steel production in China at a lower rate than in previous years.
Rio Tinto said that continuing stress in the eurozone and a weaker outlook for the US economy were affecting customer sentiment, which has become more negative in recent months.
“The price has come off, but it’s still a very strong price,” Griffith emphasises.
While he anticipates market softness in the “very short term”, he is insistent that the medium-term and long-term fundamentals of the iron-ore industry remain “very, very sound”.
JSE-listed Kumba, an Anglo American group company, is not experiencing a big build-up of stock and is selling virtually everything that it is able to produce.
“But we are seeing some concern with people wanting to stand back and watch to see what happens with prices,” he says.