Chinese appetite for ore still sharp
by: Matt Chambers
From:The Australian June 08, 201212:00AM
Source: The Australian http://www.theaustralian.com.au/business/mining-energy/chinese-appetite-for-ore-still-sharp/story-e6frg9dx-1226388107450 IRON ore shipments from the world's biggest bulk commodity export harbour, Port Hedland, hit a record last month as China kept buying iron ore from BHP Billiton, Fortescue Metals Group and Atlas Iron despite softening demand.
The figures, released by the port yesterday, back up claims from the companies that they are still selling all the iron ore they can produce amid a pull-back in iron ore prices, reports of Chinese mills deferring shipments and signals Australian expansions will be reined in.
It also rings true with comments from Fortescue chief Nev Power that his company would probably beat full-year guidance of 55 million tonnes.
Port Hedland exported 22.5 million tonnes of iron ore in May, up 8.7 per cent and valued at up to $US2.5 billion ($2.51bn) based on current spot prices.
BHP, the biggest exporter from the port, has been flagging delays to its planned $US20bn Outer Harbour expansion as it deals with lower cashflows after sliding commodities prices and $US20bn worth of shale gas acquisitions in the US.
Fortescue, which is renowned for talking up stretch targets, has also said it would pause expansions after its current round.
But the expansions that are already committed are depending on Chinese demand continuing.
Fortescue claims it will add another 100 million tonnes a year of export capacity in the next year and BHP is already building another 70 million tonnes.
According to the Steel Index, iron ore prices slid from $US145 a tonne landed in China at the start of May to a low of $US129.90 on May 23, before recovering to finish the month at $US134.80.
ANZ commodities analyst Mark Pervan said a recent trip to China had shown that while confidence there was waning, the cost of sustaining Chinese iron ore mines was expected to put a floor on prices near current levels.
"There was agreement of a high floor price ($120-$130 a tonne) because of the high cost (swinging) of Chinese iron ore supply," Mr Pervan said. "That said, some believed that if Chinese steel prices continued to fall that iron ore would have to follow, which we would agree with in the very short term."
He said iron ore prices were expected to improve this year as Chinese stimulus measures showed up in data and activity.
The bank is forecasting iron ore will average $US152 a tonne at Chinese ports in 2012-13 before sliding to $US133 a tonne by 2014-15.
A survey by Bloomberg released yesterday forecast iron ore prices into China would rise to $US152 a tonne in the second half of this year. It pointed to the approval of new steel mills in China in recent weeks by Baosteel Group and Wuhan Iron & Steel, which were among $US23bn worth of recently approved new steel production.