NEW YORK -(Dow Jones)- The iron-ore derivatives market will continue to grow, but miners of the steel component don't see a need to hedge at current prices, the chief financial officer of Cliffs Natural Resources (CLF) said Thursday...
I like Cliffs plan of action in respect to holding onto their game plan and not selling at lower pricing.Vale learned a big lesson buy flinching and I do not believe we will see Vale flinch again.Cliffs was smart to hold out on the recent iron ore dip,Vale was not.
I hadn't realized until recently that the stockpile of IO china maintains is being used as collateral for loans. That tends to indicate to me that selling it down threatens those loan guarantees. That means it's not 'really' available for supplementing their demand UNLESS they replenish what they sell from the stockpile. If supply is threatened, and for any reason, tons are not delivered, the 'stockpile' becomes a very expensive alternative (margins would go up on the loans guaranteed with the IO). The obvious plan of action is keep the volume flowing commensurate to demand.
So your comment about Vale's indiscretion of selling into weakness and perhaps, creating that weakness by diverting tons from europe to china, makes sense. I almost get the impression Vale is desperate to maintain sales volume (are they compensating for weakness in other markets? Who knows, since they don't report quarterly..)
Is the stockpile a 'false front'? With a consumption rate of 60m tons/month nationally, it provides about 45 days of 'consumption security'. Shipment lagtime from debarkation to delivery from Brazil are between 30 and 60 days depending on the days waiting to load/unload at the respective ports..sail time alone is roughly 30 days.
India's supply of IO to the chinese market is effectively nada. Australia kicks in the super tax in July. That can affect predicted production increases as costs increase..I see the spot climbing to offset those expenses and if the winter puts a cramp in shipping schedules...