Metals analysis

[metalbiz888]

Iron ore negotiation is expected to end, BDI rebounds

After continuous drops for half-month, Baltic Dry Freight Index (BDI) stopped sinking to rebound. On July 15, BDI sharply increased 227 points, ended with 3,324 points. Several insiders of shipping trade pointed out that it is expected that China’ s iron ore talks is going to close and China will significantly import iron ore to propel BDI rise.

Since this year, driven by the freight of Capesize mainly shipping iron ore, BDI experienced a round of quick rebounding and set H2 new record high with 4,291 points on June 3, rebounded nearly 500% compared with the lowest level in Dec. last year.

The insiders of China Shipping believed that the recent rebounding of BDI may be affected by the closing iron ore negotiation. The market participants thought that after iron ore price talks end, China will continue largely import iron ore and the shipping demand is still stable. In addition, scandals that even if at the level of 3,000 points around, most ship-owners still seal up for keeping freight to prop BDI tendency.

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Shougang iron ore investment project in Australia was hampered

A few days ago, Shougang did not conclude the Susan Palmer Deposit Project Agreement with Australasian in Pilbara area, therefore, it lost the right in providing assets for this project by its own. After ending the agreement, Australasian will continue negotiating with Shougang without agreement, at the same time, it will also negotiate with other investors.

The well-informed person revealed that Shougang insists on the shareholding of this project, which did not be accepted, further resulted in the breakage of the final talks.

In March 2007, Shougang invested AUD56mln in iron ore project’s research by way of buying 12.8% shares. At that time, the both sides reached the common ground that if Shougang chooses to participating this project’ s development, it will take on the whole exploitation cost of U.S.$2.7bln and also promise to purchase all iron ore produced in this project. Australasian owns the exploitation right of 1bln tons iron ore in the southern Balmoral of Pilbara.

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WISCO and CXM signed cooperative development agreement

On July 20, WISCO and Australian CXM (CentrexMetals) signed cooperative development agreement on iron ore project in South Australia. It is learned that after approved by the both sides’ government, the agreement will be formally carried out.

This cooperation of both paties involved stock acquisition, mining right purchase, exploration cooperation, JV company’s establishment, etc. As for the stock acquisition, CXM listed company will be directional 15% of shares to WISCO. After the acquisition, WISCO will become CXM second largest shareholder, owing a position of board member in CXM. Additionally, according to the determined unit price, that is, AUD 0.18 per ton, WISCO totally paid AUD 216mln and gained 60% of interests. The both side will also implement the exploration, development and construction in the special mine area of CXM through joint investment.

Australian CXM is a listed company in Australia, owing many high-quality mines in South Australia. The both side will co-develop the iron ore project in Middle and South of Eyre Peninsula in South Australia. According to the introduction, the cooperative minng area was made up of 5 lease parts, covering an area of 600 square kilometers. It is predicted that the total resource can reach over 2bln tons, with the quality of 30% around and by magnetic separation, 65% of iron concentrate can be got.


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BHP-Rio Q2 iron ore production quite differed

On July 22, BHP Billiton, the world largest mining company released the financial report of 2009, thereinto, the output in the last quarter (April-June this year) was only 27.04mln tons, dropped 10% y-o-y and 4% m-o-m. This number greatly differed with the figure of Rio Tinto’s, an 8% increase.

BHP Billiton said that the fiscal year of 2009 is very challenging for it, because the global demands apparently shrinked and inventories also changed. Therefore, the company adjusted a series of products’s production. BHP Billiton’s iron ore output reached 114.4mln tons, up 2% y-o-y, but it is far below the expected production, 130mln tons. Especially in April-June, the output presented obvious drops.

BHP Billiton pointed out that this phenomenon resulted from a series of accidents happened in Pilbara area.

However, not long ago, Rio Tinto released that its iron ore production was 45.2mln tons in Q2 this year, up 8% y-o-y, which greatly surpassed the expectation of the industry.


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Rio case enters judicial procedures to be made impartial judging

According to the sources, He Yafei, assistant minister of China’ s Foreign Ministry, said on July 22 that he had met Stephen Smith, minister of Australian Foreign Ministry in recent and expressed that China has sufficient evidence to prove that Rio Tinto’ s employees had acquired China’ s confidential documents by illegal means.

It is reported that He Yafei had introduced the case to Stephen Smith and stressed that China side had sufficient evidence to prove that the key people involved gained the China’ s confidential document by illegal means. He said in a press conference that this case has gone to judicial procedures, added he had informed Stephen Smith China side will try its best to make it, but this case must perform the whole judicial procedure at first.

He Yafei met Simth in a meeting in Egypt last week. He showed Smith that Rio Tinto case does not affect the relationship between China and Australia. He Yafei disclosed that China side does not expect such thing to happen again and believes that Australia side will regard this case as the individual case to cope with.


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Vale refused to make a concession to China on price cut

The world steel industry is recovering from the largest collapse since the second World War. Currently Vale, the world largest iron ore manufacture, refused the price cut requirement of China.

Last month, Vale agreed to reduce 28% to Japan’ s steel mills in the annual agreement, which is the first time to cut the price for seven years, while China side has been seeking for 45% discount. Since the initial contract determined this year, the iron ore price increased 38% on the spot market, which weakened China’s position in the negotiation. Roger Agnelli, CEO of Vale said on July 25 that he would not give a large discount in this negotiation, which lasted for a longest time historically. The report of McKinsey pointed out that China detained Rio Tinto’ s executives and accused them of involving espionage, which made the relationship between Australia and China broken, but may in favor of Vale.

Paul Cliff, mining analyst from Nomura Securities’s in London said in an interviewing on July 22 that it is less likely for China steel manufacturers to gain more discount, added China either agrees the current benchmark price or purchase iron ore from the spot market. This year, Vale’s sales increased 35% in Sao Paulo, at the same time, the stock also grew 45%. In London, Rio Tinto rose 97%, but the sales volume of BHP Billiton, the world largest iron ore exporter just increased 23%.

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CISA held meetings, possibly accepted mixed pricing

China Iron & Steel Association (CISA) held a two-day meeting from July 29 and people all paid attention to the statement of China side on iron ore price and position. With the price rising of spot ore, the inside upper management personnel and analysts estimated that CISA may announce a compromise proposal, such as the mixed pricing. In addition, the mainland media reported that presently CISA is speeding up the relevant rules for iron ore import qualification, involving the licensed steel enterprises of 70 and traders of 42.

In the meeting, which held once a half of year and attended the executive members of CISA, it is estimated that the agenda of steel enterprises’ profitableness in H1 and oversupply may take a back place. The outside world paid attention to China’s statement on iron ore price and position. Reuters reported that the steel enterprises and upper management personnel of CISA, who attended the meeting on July 29, did not give positive answers on iron ore negotiation process.

The upper management from Tanggang told the reporters before attending the meeting that he was less clear about the latest process of iron ore negotiation, while the insiders of Shougang and Ansteel unanimously declared they had sent special men to participate in the negotiation but not know much about the concrete development.

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Iron ore push up steel price, strictly deter disordered import

With the continuous rising of steel price and the expansion of market demands, the imported ore price also has increased. Presently the spot price of China’s imported ore has broken U.S.$100 per ton, far higher than the long-contract price of Japan, therefore, China Iron & Steel Association (CISA) said it will strictly crack down the disordered import, especially the illegal speculation of traders.

According to the latest data released by CISA, there are 152 importers in China this year, exceeding 112 licenses that CISA issued. Although China has strict iron ore agent system, which regulated that the traders without license can not import iron ore, agent system lost its binding force facing with the huge interest and 40 illegal enterprises are still importing iron ore. In H1 this year, China imported nearly 300mln tons of iron ore from oversea, while 131mln tons of imported ore from traders.

What made Shan more anxious that the excessive imported ore caused sea freight significantly rising. Take the freight from Brazil to China for example, the price was only U.S.$8.85 per ton at the end of last year, while now it has climbed to U.S.$45.6 per ton, increased five times.

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June PPI in Eurozone set a historical largest drops YoY

Data released by Eurostat on August 4 showed that Produce Price Index (PPI) in June in Eurozone has first risen since July 2008, creating a new record high than the decrease degree of the same period last year.

Eurostat stated that June PPI in Eurozone was up 0.3% than May, down 6.6% than the same period of last year, setting the widest yearly range since the data was worked out.

May PPI in Eurozone, after correction, remained the same level of April, down 5.9% than the same period of last year. Eurostat amended the May PPI data, the initial value down 0.2% than last month, down 5.8% than the same period of last year.

The above-mentioned data basically correspond to economists’ expectation. Some economists predicted that June PPI in Eurozone increased 0.1% than May, down 6.6% than the same period of last year.

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Baosteel' s recombination not finalized, Zhanjiang project is pending

Baosteel’ s recombination of Shaoshan Iron & Steel (Shaogang) and Guangzhou Iron & Steel (Guanggang) has been hanging for many year, but presently it still in right confirmation phase as well as Zhanjiang project, with the slow progress due to the influence of macroeconomic control.
In response to the scandals that Baosteel is intended to fully control Guangdong Steel by purchasing the assets of Guangang and Shaogang, recently the insiders told reporters that Baosteel did not do the responsible investigation to Shaogang and Guanggang.

Wang Chengran, business director, responsible for Baosteel’ investment business, told reporters that “although the due diligence did not carry out, when or whether to do it is no conclusion now”.

Baosteel: the asset to be confirmed the right

"Not a responsible investigation, but a asset evaluation” Yang Yaowei, secretary to president of Guanggang Stocks told reporters, added after Guangdong Steel found last year, it had sent someone to do assets evaluation and audit, but the detailed figure is not known.

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BHP Billiton: iron ore price depends on the market

BHP Billiton, the global largest mining group, appealed to eliminate the “minds and anxiety factors” in the iron ore deals and transferred to market pricing just like oil and coal.

Marius Kloppers, CEO of BHP Billiton made the aforesaid appeal on August 12, while China’ s government just arrested four staffs of Rio Tinto, its major opponent, which is the latest progress aroused from the crisis in the iron ore annual price negotiation of Rio Tinto.

When BHP Billiton announced to halve the profits this year, Marius Kloppers pointed out that the traditional system of iron ore price based on the contract will be replaced sooner or later.

"The ball is rolling and will continue to roll down”, Marius Kloppers said. He added that although BHP Billiton was unable to promote the reform, the other participants had begun to agree with this idea.

According to the traditional pricing system, Rio Tinto and BHP Billiton and other major iron ore makers negotiated an annual price with steel manufacturers. Iron ore is the crucial raw material in steel production.

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Valin Steel became FMG’s second-largest shareholder with 17% shares

Source from the press conference released by China Iron & Steel Association (CISA) on iron ore negotiation result noted that Valin Steel in Hunan province had became the second-largest shareholder of FMG, Australian third-largest mining firm and held the 17% of stocks.

Valin Steel was set up jointly at the end of 1997 by Xianggang, Liangang and Henggang, the three leading steel enterprises in Hunan province, being one of the top-ten steel enterprises in China.

FMG covers 52,000 square kilometers in Pilbara area, the famous iron ore manufacturing place, next to the mining area of iron ore giants—BHP Billiton and Rio Tinto and its ore resource is expected to reach 20bln tons around.

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Steel price fell for nine consecutive days, drops up to 900 yuan per ton

Affected by the new progress of iron ore negotiation and the continuous drops of steel price, most small steel mills adjusted the EXW price of the construction steel. On August 18, the steel price continued to decline and most products’ prices dove up to 150 yuan per ton. This is the nine consecutive days to drop after the hectic increase in the previous times, and the drop extent reached 900 yuan per ton.

On August 18, based on the price of August 11, Yonggang adjusted down the wire rod price by 500 yuan per ton, debar price decreased 500 yuan per ton and spiral price dropped 500 yuan per ton. On the basis of August 17, the EXW price of 12mm-14mm debar from Jingang was down 50 yuan per ton, other specifications’ dropped 100 yuan per ton and the spiral price sank 100 yuan per ton. Based on the price on August 12, the prices of all wire rod from Chenggang was down 150 yuan per ton and all debar price declined 100 yuan per ton.

Recently the news noted that due to the coming of 60-anniversary National Day, the construction field in Beijing area scheduled shutdown in mid-September, the demand in the construction steel will shrink further and the steel price may continue to sink.

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Three steel giants continued to increase the price for September

After Baosteel and Ansteel issued the steel policy for September, On August 24, WISCO, one of the three steel giants, also released the final adjustment policy for September. CRC increased 400 yuan per ton, HRC was up 350 yuan per ton and the galvanized plate boosted 500 yuan per ton. Up to now, the steel price for September from the three steel giants all exceeded August’s 600-1,000 yuan per ton.

According to the report from China Securities Journal on August 25, the market participants believed that although the recent steel price significantly dropped, with a 500-900 yuan per ton falling, the top steel mills were not anxious to adjust down the price for September instead maintain the upward tendency, which aimed at keeping the steel price stable. Because the crude steel production in August set a record high again, while the steel social inventories did not fall but rise, which brought much pressure on supporting the steel price for September.

Pressure from high inventory and production to present

Although the large steel mills tried to stabilize the price for September, the social inventories in the domestic 26 cities presented the dramatic rising year on year, while the crude steel production set a record high in early August. The market participants worried that the aforesaid factors brought the pressure on steel price.


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“China factors” weakened, August BDI slumped 28%

Recently, the dramatic drops of Baltic Dry Index (BDI) captured the market’s attention.

On August 25, BDI dropped for the six consecutive days with 2388 points, accumulatively decreased 41% from the new highest on July 4 this year, a 4291 points. The falling in August reached 28.7%.

BDI can exactly reflect the tendency of the international dry bulk market, involving China’ s imported iron ore, metallic ores, steel, soybeans, and etc. In H1 this year, BDI significantly increased from the 663 points at the end of 2008 to 4291 points, a 547% rising.

Zhao Weiwei, analyst of Tianqi Future said that “BDI significant growth in H1 can be attributed to the following two factors, on one hand, the international hot money speculation, on the other hand, the demand rising in raw material from China.

According to the data from China’ s General Administration of Customs, in the first seven months this year, the country’ s accumulative iron ore import grew 31.8% over the same period of last year, soybean import was up 27.7% year on year, copper and unwrought copper imports boosted 75% and unwrought aluminum and aluminum with a 193.9% increase totally.


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CISA: new policy to curb overcapacity of steel industry to issue

On August 26, Chinese chairman Wen Jiabao, presided the executive meeting of State Coucil, discussing to curb the overcapacity and redundant construction in most regions. Thereinto, the steel industry is listed to the key industry.

The meeting pointed out that under the condition of overcapacity, the steel industry is still blindly expanding. At present, the detailed measures to strength the development of steel industry include the four aspects. Firstly, the strict market access, to enhance the approval and management of the project with overproduction, secondly, to strength the environment regulation, thirdly, to legally supply and use lands, fourthly, to strictly carry out the controllable financial policy, fifthly, to construct the systems for news release.

Zhu Hongren, spokesman of Ministry of Industry and Information Technology (MIIT) said that if the steel industry blindly seeks the production, the coming new round of overcapacity may arouse many serious problems. As for this, the country will issue the relevant policy in the recent days, focusing on guiding steel industry to develop healthily.

Shan Shanghua, secretary of China Iron & Steel Association (CISA) disclosed that the overcapacity in the steel industry directly led the steel price to abnormally fluctuate, further affected the health development of the whole industry. Therefore, CISA is assisting the government departments to formulate a series of policies.

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China Shenhua to establish a base for 30mln tons of coal reserve

On September 1, Zhang Xiwu, chairman of China Shenhua attended the press conference on performance in Hong Kong, and showed the satisfaction with the performance of H1.

In H1, the operating revenue of the company was 57.083bln yuan, up 7.801bln yuan year on year with a 15.8% increase. The profit of shareholders reached 16.92bln yuan, up 14.2% year on year.

Zhang Xiwu told reporters that “the company is scheduled for establishing a base for 30mln tons of coal reserve”.

Zhang disclosed that “if the reserve base is approved by the relevant government departments, it can be used as the country’s coal reserve, added that whether National Development and Reform Committee (NDRC) to approve, taking the establishment of sales network and reserve base in the large-consumption area into consideration, it needs to establish the base for coal reserve.

Zhang said that “the coal price is expected to keep the tendency of H1, because 85% of the settled contract was one-year and mid-long term contract, which basically stabilized the coal price of a year.” He pointed out that “in H2, the coal demand and supply will maintain the balance and may be tight in a certain time or regions”.
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Shandong Steel concluded the agreement with Rizhao Steel on restructuring

Lasted for nearly a year, the merger between Shandong Steel and Rizhao Steel finally settled. On September 6, Shandong Steel Group Co., Ltd. and Rizhao Steel Holding Group Co., Ltd. signed agreement on asset restructuring and cooperation, which marked the former succeeded in the reorganization.

According to the agreement, both sides jointly reorganized the assets to the JV by the means of capital increasement. Shandong Steel owns 67% stakes by cash, and Rizhao Steel held 33% stocks with the net assets. Additionally, the agreement made a clear on restructuring principles, means, the scope of assets, the evaluation of restructuring assets, the work processes, as well as staff placement etc. After signing the agreement, both sides will immediately start all evaluation works.

The determined agreement between Shandong Steel and Rizaho Steel indicated the both sides made a substantial progress in asset reorganization and cooperation, as well as the strategy of Shandong’ s industry shift from the inland to coast stepped up.

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Rio Tinto exported ore from Australia broke 3bln tons totally

On Sep.8, 2009, Rio Tinto announced that the iron ore exported from Australia set a record high with a total of 3bln tons. Since Rio Tinto exported a ship of raw materials used in steel-making from Pilbara in 1996, the export in this area presented an exponential development.

Eleven mines and two ports of Rio Tinto operated in West Australia Pilbara. The export via Cape Lambert and Dampier broke 3bln tons totally on Sep.8. GregLilleyman, chief executive responsible for Pilbara said that “the two mines are more than 300 kilometer apart and the qualities of the ore differ, they are exported by railway to a new port having four berths, and then are shipped”.

He added that “the exponential development of Pilbara can be divided into three phases, that is, to take 25 years to achieve the first 1bln tons, following 12 years for the second 1bln tons, and then 6 years for the third 1bln tons”.

Rio Tinto planed to export 200mln tons of iron ore from Pilbara in 2009, compared with 761,000 tons in 1966, the export presented a significant change.

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Shougang invested 19bln in a steel project in Changzhi

Previously Li Yan, production manage from Shougang, visited Shanxi and brought an investment of 19bln yuan for Changzhi Shanxi.

After more than one month of the foundation of Shougang Changzhi Iron & Steel, on Sep.10, 2009, Li Yan as a representative authorized by chairman of Shougang, signed the investment agreement with the government of Changzhi on steel project. According to the agreement, in three years Shougang will invest more than 19bln yuan in Changzhi to optimize the industry structure of Changzhi Group and establish a steel project with the annual capacity of 3mln tons, which also fulfilled the promise when Shougang recombined Changgang.

According to the forecast of domestic steel market in H1 of 2009, after the new project established, the annual sales income could reach 18.683bln yuan, the total profit would be up to 2.616bln yuan and 1.845bln yuan tax.

However, source from Changzhi Iron & Steel noted that when the project completed, the parent company of Shougang would remove some original facilities to Changzhi and recently it would send minority of management personnel to Changzhi to participate the management work of Changzhi Iron & Steel.

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