Wednesday, 14 August 2013

Chinese Steel Stock Continues to push the Iron Ore Price higher.

The base level for Iron Ore has reached its highest in 5 months.

The data provider Steel Index says the rise is on the back of heavy steel re-stocking in China, fuelled by an improvement in its property sector. Prices reached US $141.80 a tonne.  At this time last year, the iron ore price had already begun its terrifying descent towards a September low of $US86.70 ($94.10) per tonne, a price that prompted more than a few Australian miners to contemplate their existence.

Despite this rise investors are remaining cautious pending the decision from the US Federal reserve on the stimulus measures next month. A Bloomberg survey of economists found 65% believed the Fed would reduce its monthly bond purchases at next month’s meeting, up from 50% last month.

The Dow Jones Industrial Average fell 0.7%, while the S&P 500 dropped 0.5%. Like the Australian market yesterday, stocks in Toronto were flat. 

Philip Kirchlechner of the Steel Index said stocks at steel mills in China have been fairly low: about 20 days  worth of supply, whereas typically they are at 30 - 40 days.

"They're getting caught short,'' he said, ''and that causes buying to increase again and the price to spike."
Rob Brierley of Patersons Securities said other factors had also played a part: "I think China (is) ... running a leaner inventory system,'' he said.

Earlier predictions were that the price could fall below $US100 per tonne later this year. This is just one price spike in what's been a buoyant few months for iron ore miners.

While Mr Brierley admits initial predictions of a dramatic price fall were probably slightly overstated, he's still anticipating the price will moderate towards the end of the year.

"I think there's reasons why it should be a little bit softer this year than say last year but I would expect the price to moderate in the September and October period.

"We are transforming, there are a number of expansions that Rio Tinto and BHP have done and what Vale in Brazil are doing, and that will increase supply.

"So there are a lot of forecasters out there saying there will be a glut of supply coming on next year and the year after."

Mr Brierley says China is moving into a new phase of slower growth but it will still need steel.
"China is transitioning from a construction driven economy to a consumer driven economy so that means steel demand will airball or consumption will slow down but it's still very strong and not expected to peak until 2020," he said.

Iron ore miners are expected to report some of the best annual results this reporting season.