Steel (Iron Ore) 02 (Nov 11 - Apr 17)

[winston]

We Like Steel: Goldman

By Shuli Ren

At last weekend’s National People’s Congress, China announced its official supply cut targets for 2017, and the steel industry received the most attention.

China will cut the production capacity of coal by 150 million metric tons this year, a less ambitious target than 2016.

But steel companies will be asked to [b]shut down 50 million metric tons of capacity this year, [/b]more aggressive than last year’s target of 45 million metric tons.

Aluminum, a hot commodity recently because of proposed capacity cuts, received no mention (see chart).

Goldman Sachs‘ Yan Yan wrote:
Buy Baosteel, Magang (H/A) and Angang (A). For steel, while we highlight later-than-expected demand pick up as a short term risk, any price correction by inventory sell-off would create a favorable buying opportunity, as prices should recover into peak season.

A similar buying opportunity occurred last Oct, when a slightly later-than- expected 4Q demand pick up caused an inventory sell off, followed by a sharp price/margin rebound.

China’s capacity cuts have improved the fortune of steel companies worldwide. United States Steel Corp. (X) has advanced 14.5% this year.

Source: Barron's Asia

http://blogs.barrons.com/asiastocks/201 ... l-goldman/

[winston]

Why Iron Ore Will Break Below $70

By Shuli Ren

Iron ore prices fell 2.9% to $87 per ton overnight.

But even at the current spot price, everyone is making money, which means we are likely to see a flood of production again.

According to Deutsche Bank, if iron ore is priced at $90 per ton, about 1% of the current supply is losing cash.

At $60 per ton, only 14% of suppliers are losing money.

Even at $40 per ton, just about a third of the suppliers are in the red.

Analyst Paul Young wrote:
Our last run of the global curves in mid 2016, where we stated the “40/60 rule: 40 to shut, 60 to start”, showed that only 5% of global production was cash flow negative at US$60/t.

With the bounce in FX and oil in 2H16, we now estimate that 14% of supply loses cash at US$60/t.

Nevertheless, swing supply is returning at US$90/t, with Chinese domestic production now operating at a 280mtpa runrate, up from an average of 220Mtpa in 1H16, and “non-traditional suppliers” shipping at a rate of 195Mtpa to China, a recovery from 170Mtpa.

In addition, although Chinese steel demand is robust, we think more low cost supply from the majors and juniors in 2017 will result in a retracement in the iron ore price to US$60-70/t by mid-year.

This morning, BHP Billiton (BHP) tumbled 5%, Rio Tinto (RIO) dropped 1.8%, and Fortescue Metals (FMG.Australia) dropped 3.7%. Brazil’s Vale (VALE) slipped 4.7% overnight.

Source: Barron's Asia

http://blogs.barrons.com/asiastocks/201 ... -below-70/

[winston]

Iron Ore Rally Starts to Crack as Capital Economics Sees $45

by Ranjeetha Pakiam

Benchmark prices have lost 5% this week amid China concerns
Futures enter corrections with 10% declines from recent highs

A combination of ongoing expansion in supply at a time of only subdued demand underpins our forecast.

Without a lift in demand, once the decision is made not to continue to build inventories, then that excess supply will suppress prices and the fall in prices will spur an unwinding of inventories, which will lead to a deeper correction to prices.”

“We stand by our forecast for a significant correction in ore prices, we just can’t be sure of the timing.”

Source: Bloomberg

https://www.bloomberg.com/news/articles ... yptr=yahoo

[winston]

Iron Ore Rally Starts to Crack as Capital Economics Sees $45

by Ranjeetha Pakiam

Benchmark prices have lost 5% this week amid China concerns
Futures enter corrections with 10% declines from recent highs

A combination of ongoing expansion in supply at a time of only subdued demand underpins our forecast.

Without a lift in demand, once the decision is made not to continue to build inventories, then that excess supply will suppress prices and the fall in prices will spur an unwinding of inventories, which will lead to a deeper correction to prices.”

“We stand by our forecast for a significant correction in ore prices, we just can’t be sure of the timing.”

Source: Bloomberg

https://www.bloomberg.com/news/articles ... yptr=yahoo

[winston]

Chart of the day: Shanghai steel rebar surprises

by Nicole Elliott

Just when you thought old Chinese industries had been killed off ... the stuff fights back.

Volume and open interest in Shanghai steel rebar and Dalian iron ore futures has risen steadily since December to match some of the highest levels of the past three years.

The front-month rebar contract’s price soared to match our target of 4,000 yuan (US$578.50) per tonne.

We continue to believe some consolidation is needed around this area, partly because it is overbought and bullish momentum has eased since February, and also because the rally has pulled away from moving averages.

Dips to the 3,500-yuan area are seen as buying opportunities for a rally to 4,500 yuan later this year.

Source: SCMP

http://www.scmp.com/business/commoditie ... -surprises

[winston]

China hits back at foreign scrutiny on its excess steel capacity

The problem is a global one, requiring international cooperation, says vice-commerce minister

China is both the world’s biggest steel producer and consumer

Robert Light­hizer, said Beijing’s industrial policies had led to “uneconomic” production, particularly in steel and aluminium, and he pledged to force China to cut back excessive capacity with more trade enforcement measures.

Beijing has announced plans to slash another 50 million tonnes of steel capacity this year, on top of the 65 million tonnes removed last year.

Many of the plants closed last year were already idled, however, and output from the still-open plants actually rose 1.2 per cent to 808.4 million tonnes.

Source: SCMP

http://www.scmp.com/news/china/policies ... cess-steel

[behappyalways]

Here's how much more steel China will need for its new megacity
http://www.cnbc.com/2017/04/05/heres-ho ... acity.html

[winston]

Here's how much more steel China will need for its new megacity

by Huileng Tan

China's new project to build a megacity on the outskirts of Beijing will drive steel demand, with the country likely gobbling up an extra 12 to 14 million metric tons of the commodity a year.

The amount will just be a minuscule proportion of the nearly 1.63 billion tons in global crude steel production last year

"Assuming the authorities wish to replicate Shenzhen in 10 years (double the speed at which Shenzhen was built) at least in terms of physical infrastructure, that would provide 12-14 million tons of extra steel demand per year on a current domestic demand rate of about 700 million tons, i.e. about a 2 percent uplift"

Source: CNBC.com

http://www.cnbc.com/2017/04/05/heres-ho ... CKW,NSK9,1

[winston]

Iron Slumps Into Bear Market as Barclays Sees Further Losses

by Ranjeetha Pakiam and Jasmine Ng

‘We have been calling for this for a while,’ Barclays says
Benchmark spot price has dropped by more than 20% since peak

Iron ore is in retreat after a procession of negative outlooks, with Barclays among banks saying that gains were unsustainable, along with Australia’s central bank and even some mining companies.

There’s concern that curbs in China may hurt steel consumption in the top user, as well as forecasts that a further expansion in mine supplies from Brazil, Australia and China will undermine prices.

China has been tightening restrictions on its real-estate market in recent months after prices soared, clouding the outlook for construction steel, including reinforcement bar.

Last month, the central bank asked banks in Beijing to scrutinize home loans to newly divorced couples and funding sources for borrowers, adding to other curbs.

Source: Bloomberg

http://finance.yahoo.com/m/279fef53-db8 ... arket.html

[winston]

Falling Iron Ore Prices Dig A Hole For BHP, RIO, Other Mining Stocks

By Johanna Bennett

Iron ore prices have tumbled to a near six-month low, and taken some big mining stocks along for the ride.

Yesterday, we reported in this blog that China unveiled steel output numbers for March that set a new monthly record at 72 million tons. That stoked fears of a supply glut, and pressured prices for iron ore and steel.

Today, prices continue to drop. The Financial Times reports that iron ore, a key component in making steel, dropped almost 5%.

And being that iron ore is a key source of profits for Anglo American (AAL.London), BHP Billiton (BHP) and Rio Tinto (RIO), it’s not hard to guess why all three mining giants are falling in recent market action.

Anglo American fell 5.1% in local market action. U.S.-listed shares of BHP and Rio dropped 2.6% and 1.6% respectively.

Brazil’s Vale (VALE) dropped almost 3.07% and Glencore (GLNCY) retreated almost 3.3% in recent market action.

Source: Barron's Asia

http://blogs.barrons.com/asiastocks/201 ... ng-stocks/