Reuters: same old hedge fund garbage about iron ore prices
Iron Ore-China prices set for 20 pct decline in 2011 Reuters January 1, 2012 Iron ore prices in China, the world's biggest market, are headed for a 20 percent decline this year because of a government-mandated credit crunch as well as uncertainties about steel demand at home and overseas, and few analysts see them recovering soon. Rising interest and reserve requirement rates over the year made it difficult for traders and steel mills to find the funds required to make large purchases. The rapid drop in prices over September and October also left many traders facing heavy losses. Spot iron ore prices inched up on Friday after a flurry of speculative purchases ahead of the new year. Industry consultancy Umetal said spot offer prices for 61-percent Pilbara fines gained $1 to $136-139 per tonne, including cost and freight, after staying flat for six consecutive days. On Thursday, traders in China purchased Pilbara fines at a price of $137.8 per tonne, Malaysian lump at a price of $135 per tonne, 63-percent Brazilian fines at $155 per tonne and Ukrainian 65-percent concentrate at $184 per tonne, Umetal said in its "Trading Signals" report on Friday. Major indexes all made gains on Thursday. Ore with 62 percent iron content stood at $138.4 a tonne on Thursday, according to The Steel Index .IO62-CNI=SI, up 1.17 percent on the day but down 18.6 percent compared to Jan. 1. "There must have been a bit of buying going on before the new year break, and some must be hoping to profit from a jump in prices in the new year," said a trader based in Shanghai. "My feeling is that prices are back at their natural level after falling so quickly (in October), so I'm not expecting any major adjustments in the coming few weeks, but there could be a policy announcement to stimulate buying," he said. Iron ore prices reached a nadir of around $116 per tonne at the end of October but bounced back as end-users sought to replenish their stockpiles. Mills now have enough to see them through the lunar new year holiday beginning on Jan. 22. According to a survey by industry consultancy Mysteel, 55 small- and medium-sized steel mills had an average of 39 days of imported iron ore stocks by the end of last week, up from 31 days a month earlier. Traders are now looking to see what the new year will bring. While some expect the government to ease the tight credit restrictions imposed in 2011, few envisage a return to the price levels seen earlier this year. "I'd be very surprised if prices return to $190 -- it was clear that those prices were unsustainable," said the Shanghai trader. According to a Reuters poll, spot prices of 62 percent iron ore are expected to average $150 per tonne including cost and freight in 2012. The most traded steel rebar futures contract in Shanghai was largely unchanged on Friday, ending at 4,210 yuan ($670) per tonne, up 9 yuan since the previous close and down 15 percent from its peak at the beginning of June.
the article quotes prices as of Friday, the 30th of Dec, and announces a 39 day supply which by my calcs will provide IO supplies through the 7th of February. In a perfect world, those mills (the 55 probably make up the lion's share of the buyers in the spot market) could then buy from china's stockpile to carry them for another month, which puts them into March..so theoretically, the spot price bottom could fall out between now and then. But what happens if they can't buy from that stockpile, except at elevated prices (the IO is security for outstanding loans, and any sales must cover the interest or payoff on the loan)? What happens if an alternative supply is not available because the winter weather closes ports/locks or ships are laid up for the winter? Naturally the production schedule of china's steel mills will slow during the heaviest winter months, but who gets to continue to provide steel to the market during the winter? The highest bidder or the most politically connected mills, I would imagine. And where is the coal stockpile? How does china combat those predicted brownout periods?
Anticipating a slump in demand during the winter months is becoming more tricky with advances in technology and competition for market share in china. Being able to offer a year-round market is more appealing when courting international investment for 1/5th of the world's population..
I like the way this winter is shaping up, particularly with the focus on the US economy and competition among election candidates to have the most appealing agenda to businesses here in the states.
Hedge funds are the ruination to the market.I know several guys involved in them and their all thieves.They make a fortune from other peoples money.My neighbor makes over 7mil a year working for one of the big names and I know of many other guys making 7 plus figures.Their secretaries are good for a half mil a year plus their bonus.That's another thing,their bonuses are equal to their salary in most companies,if someone is making 1mil their bonus is 1mil.