Commodity prices fell sharply, often is the forerunner of rally after, this is an obvious fact. Recently there are some industry executives said that iron ore and coal market is expected to rise next year.
Although not partial to listen to ore negotiations concerning prices assertion, but does have some reason to believe that the worst performance so far this year in terms of the two goods, the worst is past.
Asian spot iron ore prices close to $69.70 a tonne on Monday, the year fell 48%, while Australia Newcastle GCLNWCWIDX thermal coal spot prices for the week ending December 5 fell 28% to $62.25 a tonne.
Some forecasts the market next year will gently rising and stabilizing. The forecast was based on the overall point of view: the high cost of more supply will leave the market, and the largest importer of Chinese demand will grow steadily.
Vale black metal head PeterPoppinga an investor briefing, conference in London last week said that iron ore prices drop excessive, in “for a short period of time will rebound.”
Although he did not mention the price is expected to achieve what level, but he put $90 as based on supply and demand price.
Poppinga said, at the current price, the higher costs about 220 million tons of iron ore is not competitive, should be withdrawn from the market.
Theoretically, he about the high cost of output should be out of the market, and much of it from China’s point of view is correct.
* * how fast high cost supply will exit the market? * *
The real problem is that the high cost of production of exit velocity, will as fast as new supplies into the market. The world’s largest iron ore producer, vale and the other two giants – Rio tinto and BHP billiton has been rapidly increasing production. Now and join the two rivals – FortescueMetalsGroup and Anglo American, they are all in the ascent ore with lower costs of production.
Likely scenario is that the new supply in the coming years is expected to remain more than demand, and China’s import growth will slow. About two-thirds of the seaborne iron ore is sold in the Chinese market.
, deputy secretary-general of the China iron and steel association and China planning institute director li xinchuang metallurgy industry, is expected in 2015 China imported about 1 billion tons of iron ore, is increased about 6.4% this year.
Given China’s steel output is expected to total 2015 stable, so the imported 60 million tons of iron ore is basically to make up for China’s own iron ore production.
But China’s domestic iron ore industry could successfully lobbied the government giving it some tax breaks or other supporting policies, so as to make them more competitive, as this year’s coal industry.
China during the period of January to November’s iron ore imports up 13.4% from a year earlier. In contrast, is coal imports fell 9.4% year on year in the year to date.
Mainly because the plain demand growth in the domestic prices decline, this make it harder for the overseas mining competition, while global prices are low.
The implementation of new rules and new taxes, may lead to slightly reduce Chinese imports, but similar to the condition of the iron ore, the main problem is the excess supply of coal.
Coal the dawn * * * *
Rio tinto coal competent HarryKenyon – Slaney think coal market there are some signs of improvement, because of supply out of the market.
Last week to accept Australia’s Fairfax media interviews, said Kenyon – Slaney, difficult moment could last for a while, but the market is stabilized, and the cycle will turn “.
Rio tinto, points out that estimates of the Newcastle coal prices in general is an average of $76 a tonne next year, in line with this year’s average price, after rising to $81 in 2016.
But if this forecast is to be reached, may need to supply continues to rationalize, due to the strong overseas demand is unlikely to increase, while the second biggest importer of coal supply in India.
The risk is that the Australian and Indonesian rupiah, plus fuel prices led to the decrease of the cost, actually contributes to the high cost of production to continue, and postpone price rebound.
Some reasons to watch the coal and iron ore the worst is over, but mostly depends on whether there are so many high cost supply as major miners expected out of the market.