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Iron Ore Ships As Steel Shapes Up – US-FOREX.US

Forex-Publisher — Fri, 14 Aug 2009 23:50:18 +0000

Concerns about speculative buying continues to temper optimism regarding strengthening base metal prices as the market seeks to differentiate real metal demand from stockpiling and other conjectural buying. According to a recent report, one sector boasting solid demand is steel.Metal demand from China during the first half of the year bolstered steel demand, likely accounting for 60% to 85% of sales, estimates Tony Rizzuto, an analyst and managing director at Dahlman Rose & Co. He is one of the authors of the firm’s recent “Iron Ore, Steel and Dry Bulk Review” that highlights the Chinese government’s efforts to deflate speculative bubbles while maintaining steady growth by encouraging banks to lower lending. According to the review, steel and iron ore will continue to trend higher, supported by strong consumption. Automobile and construction industries account for the bulk of Chinese steel consumption. Auto sales have been rising in China as its economy grows even as the world remains in recession and in the U.S., thanks to the government’s Cash for Clunkers program. For a read on construction demand, report authors Rizzuto and Omar Nokta, an analyst and head of research at Dahlman Rose, looked to cement production. Cement is a good indication of rebar consumption and unlike most base metals, it isn’t easy to stockpile massive amounts of cement. Therefore, increased cement production indicates a pickup in construction activity and bolstered steel demand. Chinese steel trends suggest stronger iron ore consumption both from China and other global markets that have seen blast furnace restarts such as South Korea, Japan and Europe. Since these markets also depend on the seaborne market for iron ore, bulk dry freight demand is also strengthening. Rizzuto and Nokta estimate that China will import 518.4 metric tons of iron ore from the seaborne market, up from their prior projection for imports of 448.3 million tons. Companies poised to benefit from these trends, according to the report, include ArcelorMittal
, BHP Billiton
and Steel Dynamics
in metals and mining; and Diana Shipping
, Genco Shipping & Trading Limited
and Navios Maritime Holdings
in the dry bulk sector.

BHPs Upturn Plans – US-FOREX.US

Forex-Publisher — Wed, 12 Aug 2009 21:46:28 +0000

Cost consciousness is paying off at BHP Billiton. While the mining industry is still licking the wounds from an up to 90% tumble in some metal prices and faltering growth in commodity-gobbling China, the Anglo-Aussie company is keeping its eyes peeled for acquisition opportunities.
While investment in forthcoming projects would be its priority, “we do look at M&A opportunities,” Chief Executive Marius Kloppers told Forbes. Petroleum – a rapidly expanding and cheap to produce business for BHP – would be one of the areas that they’d consider, he added.
Profits at the Anglo-Australian firm fell during the year ending in June by 61%, but the fall was smaller than had been expected and there were a number of other positive signs. Topping the list for analysts was operating cash flow, the amount of cash generated from a company’s operations, and a closely watched measure of profitability. While the drop in commodity prices eroded cash flows at many mining companies-Switzerland’s Xstrata, for example, saw its first-half-year figure slide 73%-at BHP Billiton
, operating cash flow rose by 5.6% to 18.9 billion, suggesting that the firm’s cost-cutting strategy was having the desired effect. The company’s pretax, pre-interest profit margin came in at 40.6%, a decline from the year before but still well above the rest of the industry. “The numbers were very positive in our view,” says Gabor Vogel, an analyst at DZ Bank in Frankfurt who rates the stock as the “top pick” within the mining sector. “With these figures and having paid out a dividend [17% above last year], they are showing they have a certain financial strength,” he added. Shares of BHP Billiton rose 1.9% in London on Wednesday. One reason for investors’ lack of alacrity is that the firm is remaining cautious in its outlook. Kloppers told Forbes that the market won’t see clear sustained growth until the first quarter of next year. BHP has attributed part of the surge in demand for commodities earlier in the year to Chinese firms that were restocking supplies, but he has also warned that this is at its tail end. However, that economic weakness may end up being a blessing for BHP. The firm has been positioning itself at the bottom end of the cost curve, focusing on low-cost commodities and projects where there is more slack when selling prices tumble. For example, five of the seven projects completed in the past six months were petroleum projects, which cost it around 6 a barrel to produce. The firm has several billions’ worth of further petroleum projects in the pipeline too, along with aluminum, iron ore and coal. According to Charles Kernot, an analyst at Evolution Securities, the large number of low-cost projects such as iron ore and petroleum that came live during the period contributed to the cash flow rise. BHP’s cost control should also benefit from its plans announced in June to pool its iron ore operations in Australia with Rio Tinto
. That plan took shape after Rio Tinto, under pressure in Australia, ditched a proposed investment from Chinese aluminum producer, Chinalco. Since then, Rio’s relations with China have deteriorated rapidly: late on Tuesday, Chinese authorities finally arrested four employees for trade-secret infringement and bribery. BHP has been lying low in the dispute: During a conference call, Kloppers told investors the firm was monitoring the situation but operating as usual in China.

Chinas Lightens Up On Rio Tinto – US-FOREX.US

Forex-Publisher — Wed, 12 Aug 2009 21:46:23 +0000

HONG KONG -
Four employees of Rio Tinto have been charged by the Chinese government of illegally obtaining corporate secrets and bribery. The four were expected to be charged with violating more serious state secrets laws. Australian citizen Stern Hu, general manager of Rio Tinto’s Shanghai office in charge of the iron ore business and three of his Chinese co-workers Liu Caikui, Ge Minqiang and Wang Yong, were held for six weeks before the charges were announced.Citing a statement of China’s Supreme People’s Procuratorate, state media Xinhua reported Wednesday that prosecuters found evidence to prove that they were involved in commercial bribery, and investigations have also revealed that there were suspects in China’s steel and iron enterprises who were providing commercial secrets for them. “Now that he has been formally arrested we encourage China to provide Mr. Hu all the protections available under Chinese law including access to legal representation,” said Australian Foreign Minister Stephen Smith.Sam Walsh, Rio Tinto
‘s chief executive for iron ore, also urged China to let the accused meet their lawyers and emphasized that the company rejected the accusations of business misdeeds. “Rio Tinto will strongly support its employees in defending these allegations,” Walsh said in a written statement.The penalty for stealing business secrets is much lighter than the maximum penalty of stealing state secrets, which could be life imprisonment. Professor Larry Catá Backer of The Dickinson School of Law at Penn State University said it made perfect sense for China to play down Rio Tinto case. “It provides a means of continuing to build a separation between political and economic action. The great fear of other states has been a conflation of state and market activity.”
Backer, an expert on constitutional, corporate, and transnational law, warned earlier if an illegal economic activity changed into a political crime, it might well produce collateral effects, “from creating suspicion about the integrity of markets, to the inability of the Chinese state apparatus to convince others that its enterprises are not public interventions in otherwise private markets.”
Sarah McDowall, an analyst with IHS
Global Insight, regarded Beijing’s decision as an attempt to assuage growing unease within the foreign investor community over the blurred line between what is considered standard commercial information and state secrets, particularly given that a large number of companies are still controlled by the government in China.“It could be that the Chinese government became increasingly aware that the espionage charges were only serving to reinforce the negative image of its legal system in the eyes of the international community – highlighting the operational risks of doing business in China. Beijing may be especially keen to ensure that the case does not undermine investor confidence in the country, particularly during the current period of economic uncertainty,” McDowall said.Another legal expert Daniel Rosen, Visiting Fellow at the Peterson Institute for International Economics, said Beijing is partly responsible for the aggressive market research efforts both domestic and foreign are forced into, whether legal or not, because legitimate economic information on demand and supply, inventories, and plans that will impact markets are unnecessarily opaque and inaccessible. “Regardless of the merits of the charges against Rio Tinto, Beijing must take responsibility for the murkiness,” said Rosen, adding. “It is China’s responsibility to provide a level playing field for information and clear access to basic data so that firms are not lured into ‘pushing the limits’.”Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, told Forbes.com that China’s dropping charges on State Secrets Law is a welcome sign. “I believe the long term effect of this case on Sino-Australian relations will depend largely on the nature of the legal proceedings against the four. If the procedures are open and transparent and the legal rights of the accused are protected the adverse impact likely would be small. If the perception is that the four are not treated fairly and their legal rights not observed the results will be adverse.”
Thomson Reuters contributed to this article.

BHPReady For The Upturn – US-FOREX.US

Forex-Publisher — Wed, 12 Aug 2009 14:46:41 +0000

The past twelve months were never going to be pleasant for miners, with spot prices for metals falling by up to 90%, and commodity-gobbler China witnessing faltering economic growth this year, but all in all, BHP Billiton seems to have coped as well as it could have under the circumstances.Profits at the Anglo Australian firm fell during the year ending in June by 61%, but the fall was smaller than had been expected and there were a number of other positive signs. Topping the list for analysts was operating cash flow, the amount of cash generated from a companies’ operations, and a closely-watched measure of profitability. While the drop in commodity prices eroded cash flows at many mining companies – Switzerland’s Xstrata, for example, saw its first half-year figure slide 73% – at BHP Billiton, operating cash flow rose by 5.6% to 18.9 billion, suggesting that the firm’s cost cutting strategy was having the desired effect. The company’s pre-tax, pre-interest profit margin came in at 40.6%, a decline from the year before but still well above the rest of the industry. . “The numbers were very positive in our view,” says Gabor Vogel, an analyst at DZ Bank in Frankfurt who rates the stock as the “top pick” within the mining sector. “With these figures and having paid out a dividend [17% above last year] they are showing they have a certain financial strength,” he added. Shares of BHP Billiton
were up 0.5%, to 15.34 pounds , in London midday trading. One reason for investors’ lack of alacrity is that the firm is remaining cautious in its outlook. Marius Kloppers, chief executive of BHP, has attributed part of the surge in demand for commodities earlier in the year to Chinese firms that were re-stocking supplies, but he has also warned that that this is at its tail end. While North America and Europe may compensate somewhat, any assumption of a quick return to historical trend growth in the wider economy “may be premature,” the firm warned on Wednesday.However, that economic weakness may end up being a blessing for BHP. The firm has been positioning itself at the bottom end of the cost curve, focusing on low-cost commodities and projects where there is more slack when selling prices tumble. For example, the firm has spent 3 billion of a total capital expenditure of 4 billion on developing petroleum projects, which cost it around 6 a barrel to produce. The firm has several billions’ worth of further petroleum projects in the pipeline too, along with aluminum, iron ore and coal.
BHP’s cost control should also benefit from its plans announced in June to pool its iron ore operations in Australia with Rio Tinto. That plan took shape after Rio Tinto, under pressure in Australia, ditched a proposed investment from Chinese aluminum producer, Chinalco. Since then, Rio’s relations with China have deteriorated rapidly: late on Tuesday, Chinese authorities finally arrested four employees for trade secret infringement and bribery. BHP has been lying low in the dispute: during a conference call Kloppers told investors the firm was monitoring the situation but operating as usual in China.

China Fires The Next Volley – US-FOREX.US

Forex-Publisher — Wed, 12 Aug 2009 02:46:41 +0000

China fired another round in its ongoing trade dispute with Australia when it formally arrested four Rio Tinto employees it had accused of bribery and spying.
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The four employees were formally arrested on charges of infringing on trade secrets and paying bribes, China’s Xinhua News Agency reported Wednesday morning.
Three of the employees are Chinese and one is Australian citizen Stern Hu, who was born in China. Chinese authorities have held the four Rio Tinto
employees since July 5, when they were detained in Shanghai and accused of paying bribes to obtain steel industry secrets.
The arrests came during contentious negotiations between China and the miner on iron ore prices.
Australia and China have had an increasingly tense relationship since June, when Rio Tinto enraged and surprised China by pulling out of a deal to tie up with Chinese company Chinalco. Chinalco had agreed to pay 19.5 billion to buy much of Rio’s mining operations and convertible bonds.
Instead, Rio left Chinalco at the altar and embarked on a deal with archrival BHP Billiton
.

China Takes Its Iron Ore Buy To Brazil – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 10:46:15 +0000

HONG KONG -
In a common Chinese bargaining tactic staged daily at markets and shopping malls, buyers usually pretend they are walking away if sellers refuse to offer a better price. The same strategy is now being used by Chinese steel mills to negotiate with tough Australian iron ore miners.
Chinese steel mills, at an impasse over ore prices with Australian suppliers, plan to turn to Brazilian suppliers instead for the iron ore imports that feed economic growth in China, the China Daily reported Wednesday, quoting a shipping research house and a port operator.
According to shipping data provider ASXMarine, spot iron ore vessel bookings from Brazil to China surged to a record 39 in July after the Chinese government detained four Rio Tinto
employees , up from 24 bookings in the previous month. By contrast, vessel bookings from Australia’s main iron ore ports to China dropped to 31 in July, the lowest level since February, and down from the 40 bookings in June.
Iron ore price negotiations and shipments between Anglo-Australian miners Rio Tinto and BHP Billiton
have been almost frozen since four Rio Tinto Shanghai-based staff were detained by China’s Public Security Bureau in early July on charges of bribing Chinese steelmakers to obtain “state secrets” about sensitive price information during the annual iron ore contract price negotiations. On a diplomatic level, there is also rising tension between Beijing and Canberra, with each accusing the other of unfair treatment.
Zang Dongsheng, deputy general manger of Rizhao Port Group, told China Daily that some of his customers have cut their shipping orders from Australia and booked more from Brazil. Rizhao Port Group is China’s largest iron ore port operator, and handles a fifth of the country’s iron ore deliveries. The company, however, could not provide the exact figures about previous shipments from Brazil and Australia before September.
Official figures from China’s Ministry of Transport showed Tuesday that China’s main ports received 56.5 million metric tons of iron ore in July, up 35% from last year. In the first half of this year, iron ore imports surged 29.3% on an annual basis to 297 million metric tons.
Amid unprecedentedly strong demand for iron ore for China’s rapid development, Chinese steel mills refused to follow the industry practice of agreeing to a long-term contracts for iron ore at prevailing industry prices with the three major iron ore producers, including Rio Tinto, BHP Billiton, and Brazil’s Vale in the past few years. The situation became especially tense after Rio Tinto turned down an acquisition offer from Chinalco for a merger of iron ore assets in Western Australia, and cut a deal instead with its rival BHP Billiton in the middle of this year.
Chinese steel mills, led by China Iron and Steel Association , in the bilateral negotiation with Australian miners, refused in May to accept the 33% iron ore price cut offered by miners and walked away from the discussion table. Japanese and Korean steel firms agreed to the 33% price reduction and signed long-term contracts. Since then, China has been stuck buying ore at the higher spot prices, as tensions simmer between China and Australia.
The future iron ore price bargaining between Chinese buyers and Australian sellers is expected to turn even tougher, Xianfang Ren, an analyst with IHS Global Insight said in a research reported released last week.
Ren remarked that China’s dramatic arrests of four of Rio Tinto’s employees in early July was just a curtain-raiser for China’s decision to toughen up its stance in iron ore pricing.
Ren pointed to signs that the Chinese government, with its huge volume of ore purchases, was determined to seek greater bargaining power in iron ore pricing for the sake of Chinese development as early as the end of 2008, when the Ministry of Commerce, which oversees the iron ore talks, shocked the market by handing over the power of iron ore negotiation from China’s largest steel company Baosteel, to China Iron and Steel Association —a quasi-government-run entity.
Baosteel had been representing China in the annual iron ore talks since 2003, yet the big steel brother was blamed for failing to take care of its little Chinese brothers when it agreed to what they saw as an outrageous 96.5% hike in iron ore prices in 2008.
In order to have a greater control over the iron ore industry, the Chinese authorities have reduced iron ore import licences to only 112 companies, which include 70 large steel mills and 42 trading companies. The remaining 1,200 small and medium-sized Chinese steel companies must buy their ore from the large companies.
To further consolidate the steel sector, China’s central planning unit revealed earlier this year an aggressive plan to form five giant steel plants through mergers and acquisitions. The big five are expected to account for 45% of the country’s steel output by 2011.
“However, how this consolidation will play out remains to be seen, as the steel industry has been listed as a pillar industry in almost all Chinese regions and any capacity reduction will understandably meet strong resistance from local governments,” said Ren.
One thing is for sure: the iron ore drama will carry on before China can revamp its own steel sector.

ArcelorMittal Blurs Steel Outlook – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 17:46:14 +0000

Signs of the recovery in demand for steel aren’t translating into concrete numbers for its suppliers it seems, highlighted by the latest update from Lakshmi Mittal’s ArcelorMittal.The firm’s forecasts for the a third quarter EBITDA of between 1.4 billion and 1.8 billion disappointed a market that had been hoping that signs of the green shoots for the global economy, could lead to a pick up in demand and pricing power in the beleaguered steel sector. “The outlook is towards the lower end of guidance and means that significant improvements are needed in the fourth quarter,” said Rochus Brauneiser, an analyst at Kepler Capital Markets. “The speed of recovery in earnings is lower than expected. Production rates aren’t picking up, and price increases are filtering through later than anticipated.”Announcing a net loss of 792 million for the second quarter – a figure broadly in line with expectations – Mittal, the chief executive of the Luxembourg-based firm said that “positive signals” were beginning to emerge. “The past month has underlined that we expect the first half of the year to represent the bottom of the cycle,” he told investors on a conference call. “As inventories have been run down, demand has increased, prices are picking up and we have started to announce the re-start of some blast furnaces.”The firm has recently restarted three more of its furnaces, having been running on nine of the 25 as it scaled down its production to reflect lower global demand. While demand from countries such as Brazil and China is returning, it’s the muted European and American markets that seem to be thwarting a more profound recovery for ArcelorMittal, says Brauneiser. A similar bleak picture of Europe has been built by Sweden’s SSAB Svenskt Staal which said earlier this week that the market wouldn’t recover till next year, as it reported a quarterly loss of 86 million.
This bodes badly for producers such as ThyssenKrupp and Salzgitter of Germany, almost entirely dependent on European demand for steel, said Brauneiser.Revenues at ArcelorMittal
more than halved in the second quarter, while write-downs on steel stocks, and severance pay for workers who had taken up the company’s voluntary redundancy program also contributed to the quarterly loss.

BHP Dampens The Party – US-FOREX.US

Forex-Publisher — Wed, 22 Jul 2009 15:46:17 +0000

Top mining companies are set for a rough ride in the next few months, if the latest assessment of titan BHP Billiton is any indication.Updating the market on its iron ore production in the past quarter , the firm warned it expects the recent restocking in China, which has spurred a rise in metal demand and prices, to soon conclude. The firm says it’s expecting restocking to commence elsewhere including in North America and Europe, but many don’t share that optimism. “I am more cautious and don’t anticipate that there will be much restocking globally at least until 2010,” said Evolution Securities analyst Charles Kernot. Gabor Vogel, an analyst at DZ Bank in Frankfurt, doesn’t believe that this new demand will be able to offset the lost demand from China. “What we may see at the most is a stabilization of demand so it’s a question of when imports from China will restart again.”Shares of BHP Billiton
were down 2.2% in mid-afternoon trading in London, while rival Rio Tinto
- BHP’s iron ore joint-venture-partner-in-waiting – ticked up 0.1%.The consequences of no more stocking by China could be even more severe for rival Rio Tinto, says Vogel. That’s because it’s more dependent on supplying China with copper than BHP is, and copper will be more affected by an end to stock piling.
Copper prices have been on the ascent since the start of the year, and are currently up 73.9% on the London Metal Exchange. “It’s important to know [from BHP] that China was the main driving force in the last three months, pushing up the market,” said Vogel. On Wednesday, BHP also said that during the past quarter, copper production slipped 21%, which it attributed to lower-grade ore and troubles at its Escondida mine in Chile.