The price of iron ore surged 5.9% to $54.04, leaving the metal community (or at least this blogger) perplexed and confused.
We all know iron ore’s problem is oversupply.
But is it possible the biggest iron ore producers are feeling the heat and dialing back their supply overdrive?
BHP Billiton (BHP) said yesterday that it would curbing the pace of its iron ore expansion. Bloomberg reported:
A planned $600 million project to reduce bottlenecks at Australia’s Port Hedland, the world’s biggest bulk export terminal, will be deferred, meaning BHP will miss a target of raising production to 290 million metric tons a year by mid-2017.
It makes sense for BHP to deter now, commented Aviate Group‘s Robert Buckley this morning:
We saw interesting numbers from a well ranked resource analyst showing if iron ore lifts by just $2/t on the BHP delayed expansion, they recover the lost profitability of the deferral, plus the deferred $1bn in spend is still in the bank. It shows the marginal return they are getting here on low capital intensity expansions, and leverage to getting the iron ore price back up. On FY16 numbers the same analyst showed he expects EPS of US$0.92 down from $1.44 in FY15, would represent a FY16 payout ratio of 135%. BHP need to cut deeper into costs to preserve FCF.
Meanwhile, Rio Tinto (RIO)’s March quarter production fell 12% from the December quarter due to bad weather and a train derailment. That helps too.
To bet on an ore rebound, the biggest wild card is Rio Tinto. Fortescue Metals (FMG.Australia) has already cried foul and asked the industry to cap outbound, which was dismissed as “hare-brained” by Rio’s CEO Sam Walsh.
So what do we do? Aviate argues that miners can see a modest rise while “we digest the BHP move” but stopped short of predicting a sustainable rebound. After all, Goldman Sachs, the most reputable investment bank on the street, this month downgraded the entire sector. See my April 15 blog “Goldman Sees Iron Ore At $40, “No Rebound”, Downs BHP, Rio, Fortescue“.
Checking in on prices, Fortescue Metals jumped 11.6% this morning in Sydney. BHP rose 2.4% and Rio Tinto gained 2.2%. Overnight in New York, Vale (VALE) rallied 10.4%.
Below is a list of reported iron ore mine closures since
2014, when the price began to slide.
Name Company Location Size MT/yr Year
Wodgina Atlas Iron Australia 5.5 2015
Abydos Atlas Iron Australia 2-3 2015
Mt Webber Atlas Iron Australia 6 2015
Southern Arrium Australia 4 2015
Blue Hills Sinosteel Australia 3 2015
Frances Territory Australia 1.5 2015
Roper Bar Western Desert Australia 3 2014
Bloom Lake Cliffs Natural Canada 5 2014
Wabush Cliffs Natural Canada 3 2014
Kaunisvaara Northland Sweden 2 2014
Tonkolili African Sierra 20 2014
Marampa London Mining Sierra 5 2014
Serra Azul MMX Brazil 6 2014
(Reporting by Stephen Eisenhammer in RIO DE JANEIRO; James
Regan in SYDNEY; Sonali Paul in MELBOURNE; Susan Taylor in
TORONTO; Nicole Mordant in VANCOUVER; Balazs Koranyi in OSLO;
Editing by Alan Crosby)
We will know on the 28.
MONTREAL — Idled Quebec iron ore mines, railways and port facilities, are about to be put up for sale as part of a court-supervised exit from eastern Canada by Cliffs Natural Resources.
The Cleveland-based miner’s subsidiaries, which filed for creditor protection in January, are seeking a Quebec court’s permission to solicit interest next month in the Bloom Lake mine, the Wabush Mine, and related port and rail assets in Quebec and Labrador, according to a motion filed by monitor FTI Consulting Canada.
Bloom Lake General Partner Ltd. and affiliates such as Cliffs Quebec Iron Mining filed for protection under the Companies’ Creditors Arrangement Act amid falling iron ore prices.
Excluded from the sale process are Cliffs’ chromite assets in Ontario’s Ring of Fire that are in the process of being sold to Noront Resources for US$20 million.
Parties interested in the assets would be required to submit non-binding letters of intent by May 19. Qualified parties would be invited to submit formal bids by an unspecified date, followed by a possible auction.