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Last Trade - 07/05/21

Sector
Basic Materials
Size
Large Cap
Market Cap £105.80bn
Enterprise Value £109.70bn
Revenue £31.93bn
Position in Universe 12th / 1821

RPT-COLUMN-Iron ore and China steel output aren't sticking to the script: Russell

Thu 22nd April, 2021 1:00pm
(Repeats item with no changes in text. The opinions expressed
here are those of the author, a columnist for Reuters.)
    * GRAPHIC - China iron ore imports vs SGX price: https://tmsnrt.rs/3gt5KkC

    By Clyde Russell
    LAUNCESTON, Australia, April 22 (Reuters) - The China steel
and iron ore market narrative for 2021 was supposed to be
pollution-led curbs on steel output, coupled with rising iron
ore supply, leading to lower prices. 
    Neither is happening.
    The world's three biggest iron ore miners all reported lower
production in the first quarter of this year compared with the
last quarter of 2020.
    China's steel output rose to 94.02 million tonnes in March,
the highest since August 2020 and at 3.03 million tonnes per
day, it was above the daily average of 2.97 million tonnes in
the first two months of the year.  urn:newsml:reuters.com:*:nL4N2M6178
    It's therefore unsurprising that spot iron ore prices for
delivery to north China  MT-IO-QIN62=ARG , as assessed by
commodity price reporting agency Argus, reached a decade-high of
$188.70 a tonne on April 22, before easing slightly to end at
$185.60 on Wednesday.
    The high price of iron ore, as well as strength in China's
domestic steel prices and profit margins for mills, has prompted
some official concern. Beijing's industry ministry went so far
as to say on April 20 that it would take steps to stabilise raw
material prices.
    The ministry will work together with relevant departments to
fend off panic buying or hoarding, and "resolutely" crack down
on market monopolies and malicious speculation, Ministry of
Industry and Information Technology spokesman Huang Libin said,
without elaborating.  urn:newsml:reuters.com:*:nL1N2MD0HG
    At times of elevated prices in the past, the authorities
have tended to make it more expensive to trade positions and
have used what could be referred to as unofficial powers of
persuasion to calm markets.
    What remains to be seen is whether this will actually result
in lower steel output, or whether the current high profits for
producers - built on the back of strong demand amid stimulus
spending on infrastructure and construction - will win out.
    Effectively, it may come down to a choice for policymakers:
curb steel production in order to limit pollution and accept a
small hit to economic growth, or allow steel output to rise to
meet the needs of robust economic growth.
    
    IRON ORE OUTPUT TO GAIN
    On the supply side, it's clear that iron ore miners have
been unable to ramp up production to meet demand from China,
which buys around 70% of seaborne volumes.
    This isn't really the fault of the major miners, with
weather issues hampering production in top exporter Australia in
the first quarter, and maintenance at a major mine in number two
shipper Brazil.
    Rio Tinto  RIO.AX , currently the world's biggest iron ore
producer, reported quarterly output of 76.4 million tonnes for
the three months ended March, down 11% from the previous quarter
and 2% below the level of the same quarter in 2020.  urn:newsml:reuters.com:*:nL4N2MC4CN
    However, the company maintained its guidance for total
shipments of between 325 million and 340 million tonnes of iron
ore in 2021 from its operations in Western Australia state.
    BHP Group  BHP.AX , Australia's second-largest exporter,
produced 66.7 million tonnes of iron ore in the January-March
quarter, down 5% from the prior quarter and 2% lower than in the
same quarter a year earlier.  urn:newsml:reuters.com:*:nL4N2MD4QY
    The company said it expects output for the full fiscal year
to June 30, 2021, to be at the upper end of its 245 million to
255 million tonnes range. 
    Brazil's Vale  VALE3.SA  reported first-quarter production
of 68.05 million tonnes, down 19.5% from the fourth quarter but
up 14.2% from the same quarter in 2020.  urn:newsml:reuters.com:*:nL1N2MC325
    The company blamed maintenance work at its S11D mine for the
drop from the December quarter, and it also kept to its 2021
production guidance of 315 million to 335 million tonnes.
    This means Vale will have to up its production significantly
in coming quarters to meet its target.
    Rio will also have to step up output to meet its target,
though not nearly as much as Vale, while BHP is on track to meet
its target.
    Overall, if these top producers are able to meet their
targets, it does suggest that the tightness seen in the first
quarter in the seaborne iron ore market may ease by the second
half of the year.
    Coupled with an expectation that China will ease back on the
stimulus throttle and enforce pollution-led curbs on steel
output, the outlook should be that iron ore prices start to
moderate.
    But - and it's a big but - there is no clear evidence any of
this is actually happening.

 (Editing by Kenneth Maxwell)
 ((clyde.russell@thomsonreuters.com)(+61 437 622 448)(Reuters
Messaging: clyde.russell.thomsonreuters.com@reuters.net))
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