Saying they expect steel prices to rise, UBS (NYSE:UBS) added US Steel (NYSE:X) to their Short Term Buy list.
"We put a Short-term Buy rating on U.S. Steel on the back of our conviction that steel prices are about to rise. We think it is a beneficiary, with Buy-rated Steel Dynamics (Nasdaq:STLD), because it has captive iron ore in the U.S. and can see margins improve when price hikes stick. We forecast HRC at $650 for 2011, up from recent spot at $520-$560. We think Nucor (NYSE:NUE) may underperform peers given it has less captive raw materials."
Having its own iron ore resources generates a competitive advantage for US Steel, which should enjoy stronger margins and earnings for the quarter.
UBS maintains their "Neutral" rating on US Steel. The steel producer closed Tuesday at $44.85, gaining $1.56, or 3.60 percent. UBS increased their price target from $42 to $43.
Showing posts with label Iron Ore. Show all posts
Showing posts with label Iron Ore. Show all posts
Wednesday, November 3, 2010
Tuesday, October 19, 2010
BHP (NYSE:BHP), Teck (NYSE:TCK), Freeport (NYSE:FCX) and Rio Tinto (NYSE:RIO) Will Soar on Quantitative Easing
With the Federal Reserve poised to inflate via quantitative easing, a number of commodities will surge in price, which will strongly benefit diversified miners like BHP Billiton (NYSE:BHP), Teck Resources (NYSE:TCK), Freeport McMoran (NYSE:FCX) and Rio Tinto (NYSE:RIO).
According to UBS (NYSE:UBS), some of their top commodity picks include gold, copper, palladium, iron ore, thermal coal and zinc. They added they believe it's a "game changer" for commodities.
Talking on global capital flows, UBS said that should strengthen "credit creation in emerging markets." The giant bank concluded, "We believe that QE2 will prolong the bull market in commodities."
UBS' top pick in the commodity sector is palladium, which they see making significant gains through 2015.
In what could be troubling news for aluminum producers like Alcoa (NYSE:AA), UBS sees aluminum and nickel, among other commodities whose supply has little constraint upon them as being less desirable and affected by quantitative easing.
Gold of course will continue to perform strongly for some time to come. In that space, besides companies mentioned above, they like gold mining giant Barrick Gold (NYSE:ABX).
UBS said they like gold mining stocks over ownership of physical gold.
According to UBS (NYSE:UBS), some of their top commodity picks include gold, copper, palladium, iron ore, thermal coal and zinc. They added they believe it's a "game changer" for commodities.
Talking on global capital flows, UBS said that should strengthen "credit creation in emerging markets." The giant bank concluded, "We believe that QE2 will prolong the bull market in commodities."
UBS' top pick in the commodity sector is palladium, which they see making significant gains through 2015.
In what could be troubling news for aluminum producers like Alcoa (NYSE:AA), UBS sees aluminum and nickel, among other commodities whose supply has little constraint upon them as being less desirable and affected by quantitative easing.
Gold of course will continue to perform strongly for some time to come. In that space, besides companies mentioned above, they like gold mining giant Barrick Gold (NYSE:ABX).
UBS said they like gold mining stocks over ownership of physical gold.
BHP (NYSE:BHP) and Rio (NYSE:RIO) Iron Ore Deal Collapses
After almost a year and a half of pursuing a deal to combine iron ore operations, BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) have finally thrown in the towel, acknowledging it's not going to be approved by regulators.
Although the size of the deal generated a lot of interest, the judgement of both CEOs, Marius Kloppers for BHP and Tom Albanese for Rio Tinto, have been questioned as to why they even went after something with so little chance of success.
For Kloppers it's especially telling, as he is under pressure to expand the company, and he now has two failures under his belt and if facing strong pressure from Canadian forces to undermine the bid for Potash Corp. (NYSE:POT), although he has a legitimate chance at making that one happen.
As far as the Rio, BHP deal, the benefit was touted as savings of a minimum of $10 billion if they combined operations.
The deal for Potash is far more realistic than the past attempt to acquire Rio Tinto be BHP or the proposed iron ore deal. For a company the size of BHP it is big enough to add to the bottom line and grow the company in a new sector, while not being so large it would damage their credit rating and pull the company down for years.
Although the size of the deal generated a lot of interest, the judgement of both CEOs, Marius Kloppers for BHP and Tom Albanese for Rio Tinto, have been questioned as to why they even went after something with so little chance of success.
For Kloppers it's especially telling, as he is under pressure to expand the company, and he now has two failures under his belt and if facing strong pressure from Canadian forces to undermine the bid for Potash Corp. (NYSE:POT), although he has a legitimate chance at making that one happen.
As far as the Rio, BHP deal, the benefit was touted as savings of a minimum of $10 billion if they combined operations.
The deal for Potash is far more realistic than the past attempt to acquire Rio Tinto be BHP or the proposed iron ore deal. For a company the size of BHP it is big enough to add to the bottom line and grow the company in a new sector, while not being so large it would damage their credit rating and pull the company down for years.
Vale (NYSE:VALE) Positioned to Grow Organically, Spending $28 Billion on
Vale SA (NYSE:VALE) CEO Roger Agnelli said when talking with investors Monday that the company will focus on organic growth, looking at spending from $26 billion to $28 billion on projects.
Agnelli said the company had been buying up assets from 2004 through 2006, and while open to potential acquisitions, doesn't see anything at this time that is attractive.
Even if he did, the focus on the company will remain on organic growth.
The major focus in that area for Vale is iron ore and fertilizers.
Now Vale needs to shed the yoke of the Brazilian government off its neck so it doesn't have to operate under the threat of a veto if it does want to go in certain directions.
The government owns 51 percent of Vale, and can can veto or change the leadership of the company whenever it chooses to.
Agnelli said the company had been buying up assets from 2004 through 2006, and while open to potential acquisitions, doesn't see anything at this time that is attractive.
Even if he did, the focus on the company will remain on organic growth.
The major focus in that area for Vale is iron ore and fertilizers.
Now Vale needs to shed the yoke of the Brazilian government off its neck so it doesn't have to operate under the threat of a veto if it does want to go in certain directions.
The government owns 51 percent of Vale, and can can veto or change the leadership of the company whenever it chooses to.
Friday, October 15, 2010
Citigroup (NYSE:C), Stemcor in First Iron Ore Swap on CME Group Clearport Platform
Via its Citigroup Global Markets unit, Citigroup (NYSE:C) made the first transaction on the CME Group Clearport exchange with Stemcor Risk Management AG on October 10, according to Stemcor's website.
Jean-Luc Fiorenzoni, Director of Stemcor Risk Management AG, said: ”We trade iron ore swaps on a regular basis and they are an integral part of the tools we are using to manage our exposure to iron ore as well as steel price changes. There is no question that price volatility is increasing. At the same time participants in the steel industry, wherever they might sit in the value chain, need more visibility over their future returns. Cleared financial swaps offer us all an additional level of price risk mitigation as well as improved transparency.”
“This trade demonstrates the commitment of Citi to develop this market. A deep and liquid swaps market for iron ore will be instrumental for our customers’ ability to manage their exposure to this volatile market,” added Boudewijn van Vliet, responsible for iron ore, coal & freight trading at Citigroup Global Markets.
Stemcor Risk Management AG is the derivative trading unit of the largest independent steel trader in the world.
The transaction was brokered by London Dry Bulk.
Jean-Luc Fiorenzoni, Director of Stemcor Risk Management AG, said: ”We trade iron ore swaps on a regular basis and they are an integral part of the tools we are using to manage our exposure to iron ore as well as steel price changes. There is no question that price volatility is increasing. At the same time participants in the steel industry, wherever they might sit in the value chain, need more visibility over their future returns. Cleared financial swaps offer us all an additional level of price risk mitigation as well as improved transparency.”
“This trade demonstrates the commitment of Citi to develop this market. A deep and liquid swaps market for iron ore will be instrumental for our customers’ ability to manage their exposure to this volatile market,” added Boudewijn van Vliet, responsible for iron ore, coal & freight trading at Citigroup Global Markets.
Stemcor Risk Management AG is the derivative trading unit of the largest independent steel trader in the world.
The transaction was brokered by London Dry Bulk.
Rio Tinto (NYSE:RIO) Beats Analysts' Iron Ore Estimates
Rio Tinto (NYSE:RIO) reported it surpassed analysts' expectations for iron ore production in the third quarter, breaking its own quarter record in the segment, while also breaking quarterly production records for coking coal and alumina.
Iron ore production was up 10 percent, alumina 6 percent and coking coal 17 percent. Another metal gaining significantly was bauxite, which gained 17 percent in the same period.
The company said: "This quarter we achieved record production in iron ore, alumina and coking coal. Our investment in organic growth is gathering momentum. We approved more than $4 billion of capital projects during the third quarter, including investment towards the expansion of our Pilbara iron ore operations to 330 million tons per annum. This takes our total approvals this year to $5.5 billion and is consistent with our capex guidance of $13 billion over the 18 months to December 2011."
The bad news for the company was gold and copper production was down at a time when prices for both metals have been skyrocketing. Copper was down 19 percent and gold 33 percent in the third quarter.
Also slightly down was aluminum production, dropping 2 percent, and thermal coal production in Australia, which fell 14 percent.
Iron ore production was up 10 percent, alumina 6 percent and coking coal 17 percent. Another metal gaining significantly was bauxite, which gained 17 percent in the same period.
The company said: "This quarter we achieved record production in iron ore, alumina and coking coal. Our investment in organic growth is gathering momentum. We approved more than $4 billion of capital projects during the third quarter, including investment towards the expansion of our Pilbara iron ore operations to 330 million tons per annum. This takes our total approvals this year to $5.5 billion and is consistent with our capex guidance of $13 billion over the 18 months to December 2011."
The bad news for the company was gold and copper production was down at a time when prices for both metals have been skyrocketing. Copper was down 19 percent and gold 33 percent in the third quarter.
Also slightly down was aluminum production, dropping 2 percent, and thermal coal production in Australia, which fell 14 percent.
Thursday, October 14, 2010
BHP (NYSE:BHP), Rio Tinto (NYSE:RIO) JV Opposed by Germany, Japan
Both Germany and Japan have signaled they're going to oppose the proposed iron ore joint venture between BHP (NYSE:BHP) and Rio Tinto (NYSE:RIO), citing competition concerns.
It is opposed by steelmakers in both countries, who have pressured regulators to oppose the deal.
If the companies are allowed to go ahead with the deal it would save them a minimum of $10 billion in costs from combining railroads, ports and mines in the Western Australia region of Pilbara.
The companies said in a joint statement: “The parties continue to believe that the joint venture is pro-competitive and will increase the supply of iron ore. However, both BHP Billiton and Rio Tinto acknowledge the concerns expressed by some regulators and the obstacles to achieving clearance for the joint venture.”
Rio and BHP can both respond to the objections before a final decision is made.
They said they haven't decided the next steps to take concerning the venture at this time.
It is opposed by steelmakers in both countries, who have pressured regulators to oppose the deal.
If the companies are allowed to go ahead with the deal it would save them a minimum of $10 billion in costs from combining railroads, ports and mines in the Western Australia region of Pilbara.
The companies said in a joint statement: “The parties continue to believe that the joint venture is pro-competitive and will increase the supply of iron ore. However, both BHP Billiton and Rio Tinto acknowledge the concerns expressed by some regulators and the obstacles to achieving clearance for the joint venture.”
Rio and BHP can both respond to the objections before a final decision is made.
They said they haven't decided the next steps to take concerning the venture at this time.
Wednesday, October 13, 2010
BHP (NYSE:BHP), Rio Tinto (NYSE:RTP) Meeting with EU Regulators
The fate of the proposed iron ore joint venture between BHP (NYSE:BHP) and Rio Tinto (NYSE:RTP) will be pushed along by the meeting the companies will have with EU antitrust regulators.
After the meeting, which will be near the end of October, the European Commission will make a decision on whether to allow the $116 billion venture to proceed.
What will be determined is if it is anti-competitive or not.
Both companies will keep their marketing operations separate, which they say should help with competitive concerns.
While a number of other countries are also reviewing the deal, Europe is considered the toughest regulatory environment, and the deal would probably go through if it passes there.
Opposing the deal are the European steelmakers' lobbying group Eurofer, which includes steel producing giants like Germany's ThyssenKrupp (OTC:TYEKF) and ArcelorMittal (NYSE:MT).
After the meeting, which will be near the end of October, the European Commission will make a decision on whether to allow the $116 billion venture to proceed.
What will be determined is if it is anti-competitive or not.
Both companies will keep their marketing operations separate, which they say should help with competitive concerns.
While a number of other countries are also reviewing the deal, Europe is considered the toughest regulatory environment, and the deal would probably go through if it passes there.
Opposing the deal are the European steelmakers' lobbying group Eurofer, which includes steel producing giants like Germany's ThyssenKrupp (OTC:TYEKF) and ArcelorMittal (NYSE:MT).
Tuesday, October 5, 2010
Rio (NYSE:RTP) Abandoning $120 Billion Deal with BHP (NYSE:BHP), Says The Age
Australian media outlet The Age, reported today that the board of Rio Tinto (NYSE:RTP) is poised to abandon its pursuit of a $120 billion iron-ore joint venture with fellow mining giant BHP Billiton (NYSE:BHP). The Age didn't cite the sources of their information.
Reportedly the board of directors of Rio felt the deal may be more favorable to BHP than it was to them. That also could have been somewhat of a forced conclusion because of pressure from some of the shareholders of Rio concerning the deal.
The overall purpose of the deal was to be to streamline costs, which were estimated to save the companies about $10 billion.
That would have come from the combining of operations in the Pilbara region of Australia.
The deal is being examined by regulators to attain approval at this time.
No comments have come yet from either company in reference to the assertions, but that shouldn't take long to confirm and deny.
Reportedly the board of directors of Rio felt the deal may be more favorable to BHP than it was to them. That also could have been somewhat of a forced conclusion because of pressure from some of the shareholders of Rio concerning the deal.
The overall purpose of the deal was to be to streamline costs, which were estimated to save the companies about $10 billion.
That would have come from the combining of operations in the Pilbara region of Australia.
The deal is being examined by regulators to attain approval at this time.
No comments have come yet from either company in reference to the assertions, but that shouldn't take long to confirm and deny.
Monday, September 27, 2010
Citigroup (NYSE:C), Deutsche (NYSE:DB) Hired by Sinochem for Counter Bid for Potash (NYSE:POT) Against BHP (NYSE:BHP)
Rumors continue to circulate that China's Sinochem is back in the game for making a bit for Potash (NYSE:POT) against BHP (NYSE:BHP), with Citigroup (NYSE:C) and Deutsche Bank (NYSE:DB) being hired to help finance a potential bid, according to a newspaper report.
While Sinochem continues to assert they're interested, they evidently haven't decided to take the step, but are rather putting financial pieces into place in case they do.
China was furious with BHP, along with Vale (NYSE:VALE) and Rio Tinto (NYSE:RTP) over iron ore pricing, and seem to believe if BHP were to land Potash Corp., it could result in higher potash prices years into the future.
That is actually a wrong assessment by China, as least as measured by past practices of BHP, who historically prefer to produce at market price rates, rather than attempt to control supply in order to keep potash prices at higher levels in order to protect margins and earnings.
This is what the big stink in Canada is about when BHP said they would eventually leave Canpotex once current agreements were fulfilled. That has Saskatchewan particularly upset, as they perceive royalty money extracted form Potash Corp. shrinking.
More than likely that's not true, as volume would make up for lower margins, similar to how Wal-Mart (NYSE:WMT) has low margins but turns their inventory over at incredible rates to make up for it.
Add to this the higher probability of Canada opposing a takeover of Potash by a Chinese government-controlled company, and it seems a step backward from BHP.
Unless Canada decides they don't want BHP at any price to own Potash, it's hard to see on what basis they could legitimately reject the deal.
More than likely the shareholders of Potash will be the determining factor, and if they get it in their heads BHP will pay far more than the current offer, we will probably see the deal thwarted in that regard, rather than from regulatory hurdles.
While Sinochem continues to assert they're interested, they evidently haven't decided to take the step, but are rather putting financial pieces into place in case they do.
China was furious with BHP, along with Vale (NYSE:VALE) and Rio Tinto (NYSE:RTP) over iron ore pricing, and seem to believe if BHP were to land Potash Corp., it could result in higher potash prices years into the future.
That is actually a wrong assessment by China, as least as measured by past practices of BHP, who historically prefer to produce at market price rates, rather than attempt to control supply in order to keep potash prices at higher levels in order to protect margins and earnings.
This is what the big stink in Canada is about when BHP said they would eventually leave Canpotex once current agreements were fulfilled. That has Saskatchewan particularly upset, as they perceive royalty money extracted form Potash Corp. shrinking.
More than likely that's not true, as volume would make up for lower margins, similar to how Wal-Mart (NYSE:WMT) has low margins but turns their inventory over at incredible rates to make up for it.
Add to this the higher probability of Canada opposing a takeover of Potash by a Chinese government-controlled company, and it seems a step backward from BHP.
Unless Canada decides they don't want BHP at any price to own Potash, it's hard to see on what basis they could legitimately reject the deal.
More than likely the shareholders of Potash will be the determining factor, and if they get it in their heads BHP will pay far more than the current offer, we will probably see the deal thwarted in that regard, rather than from regulatory hurdles.
Thursday, September 9, 2010
BHP (NYSE:BHP), ArcelorMittal (NYSE:MT) Drop Iron Ore Discussions
BHP Billiton (NYSE:BHP) has seemingly been everywhere in attempts to make deals lately, but the one they were attempting with ArcelorMittal (NYSE:MT) hasn't worked out, as they announced they've stopped the negotiations related to the iron ore assets in Guinea and Liberia.
The talks over over attempting to merge the separate assets both companies hold in the two countries into one joint venture.
According to their joint statement, they weren't able to reach a commercial agreement, so abandoned the negotiations.
Both companies will continue on in their with their own interests in the region.
BHP is still battling to acquire fertilizer giant Potash Corp. (NYSE:POT), waiting to see if there is a competitive bid waiting on the horizon for them.
The talks over over attempting to merge the separate assets both companies hold in the two countries into one joint venture.
According to their joint statement, they weren't able to reach a commercial agreement, so abandoned the negotiations.
Both companies will continue on in their with their own interests in the region.
BHP is still battling to acquire fertilizer giant Potash Corp. (NYSE:POT), waiting to see if there is a competitive bid waiting on the horizon for them.
Friday, August 6, 2010
BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RTP) Pilbara Joint Venture in Jeopardy
As the process for regulatory approval marches on, it is increasingly becoming apparent there is strong political resistance to the proposed Pilbara iron ore joint venture between BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RTP). The deal is valued at about $127 billion.
Interestingly, it is the improving status of the iron ore market in general that is causing the increased resistance, as the need for a large venture isn't being viewed as in the public interest as it had been earlier on in the process.
"It's a very complicated matter, made more complicated by the change in the marketplace," said Rio CEO Tom Albanese. "The intent was to finish ... by the end of the year; how attainable that is, I don't know."
There are a number of regulatory hurdles the two companies face, but the most challenging are from the Australian Competition & Consumer Commission and the European Commission.
If the deal isn't approved to go forward, a backup plan reportedly is to share infrastructure, which would bring about similar results.
Interestingly, it is the improving status of the iron ore market in general that is causing the increased resistance, as the need for a large venture isn't being viewed as in the public interest as it had been earlier on in the process.
"It's a very complicated matter, made more complicated by the change in the marketplace," said Rio CEO Tom Albanese. "The intent was to finish ... by the end of the year; how attainable that is, I don't know."
There are a number of regulatory hurdles the two companies face, but the most challenging are from the Australian Competition & Consumer Commission and the European Commission.
If the deal isn't approved to go forward, a backup plan reportedly is to share infrastructure, which would bring about similar results.
Monday, June 14, 2010
Afghanistan: New Commodity Capital of the World?
Almost $1 trillion in mineral deposits have been found in Afghanistan, generating the question of whether there is an industry the people of Afghanistan can give themselves to in order to take their mind off of war and give hope to the region.
For years many outsiders have noted the country has little to offer in natural resources, and so had small chance of laying a foundation for a more prosperous future.
This isn't something that can be developed overnight, as it usually takes 10 years to get a mine going once the project is discovered.
Still, Afghanistan's future isn't one that can be looked upon as anything that will be successful in the short term, so it does not only give hope, but should put in place plans which will hopefully being the process sometime soon.
Some of the larger veins of minerals discovered include copper, cobalt, iron, lithium and gold.
The potential is evidently so great that it is expected significant investment could be brought to the country even before the mines are deemed profitable, although that is somewhat standard in the mining industry in general, this seems to imply proven reserves before operations even begin, making the potential for early investment a real possibility.
For years many outsiders have noted the country has little to offer in natural resources, and so had small chance of laying a foundation for a more prosperous future.
This isn't something that can be developed overnight, as it usually takes 10 years to get a mine going once the project is discovered.
Still, Afghanistan's future isn't one that can be looked upon as anything that will be successful in the short term, so it does not only give hope, but should put in place plans which will hopefully being the process sometime soon.
Some of the larger veins of minerals discovered include copper, cobalt, iron, lithium and gold.
The potential is evidently so great that it is expected significant investment could be brought to the country even before the mines are deemed profitable, although that is somewhat standard in the mining industry in general, this seems to imply proven reserves before operations even begin, making the potential for early investment a real possibility.
Tuesday, June 8, 2010
Rio Tinto (NYSE:RTP) to Invest Billions in India Mining
Rio Tinto (NYSE:RTP) considers India one of its leading mining markets, and is prepared to invest billions of dollars into the region.
“India is high on our priority list and we are ready to spend billions of dollars in its mining sector,” said Rio Tinto chief financial officer Alan Davies.
Not only is Rio looking within physical India for mining project partners, they're also looking for Indian partners to explore outside of the country as well.
“We are talking to both these companies (Essar and Coal India Limited), as also other private majors from India, to work within the country and outside. New prospective markets are being explored, such as Brazil as also Canada, where Rio Tinto already has its operations,” added Davies.
While iron ore, coal and diamonds are the major minerals being looked at now, any good resource seems to be a possibility for lining up partners to work with.
“India is high on our priority list and we are ready to spend billions of dollars in its mining sector,” said Rio Tinto chief financial officer Alan Davies.
Not only is Rio looking within physical India for mining project partners, they're also looking for Indian partners to explore outside of the country as well.
“We are talking to both these companies (Essar and Coal India Limited), as also other private majors from India, to work within the country and outside. New prospective markets are being explored, such as Brazil as also Canada, where Rio Tinto already has its operations,” added Davies.
While iron ore, coal and diamonds are the major minerals being looked at now, any good resource seems to be a possibility for lining up partners to work with.
Thursday, May 27, 2010
Citigroup (NYSE:C): BHP (NYSE:BHP), Rio Tinto (NYSE:RTP) Projects May be Delayed because of Australia Super Tax
Citigroup (NYSE:C) says the proposed super tax on mining companies in Australia could result in mining projects of BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RTP) being delayed for about a year, countering the purpose of the destructive tax in the first place.
“The iron ore market is in deficit until 2012, but tips into growing surpluses in 2013 onwards as supply growth accelerates,” Citigroup analysts Clarke Wilkins, Craig Sainsbury and Daniel Seeney said in a note to clients. "Delaying Australian unapproved projects by 12 months would dramatically reduce the surplus in 2013-14.”
Also affected would be Fortescue Metals Group (ASE:FMG), which is the third-largest iron ore exporter in Australia.
All of this could also have a negative impact on the global steel market, where steelmakers would bear the brunt of the tax, and whatever they end up passing on to the enduser will result in inflation.
I have a better idea, like all governments, the Australian government needs to become smaller, and that way they don't have to have such a negative impact on the rest of the world, as all governments do.
The oppressive tax is scheduled to start in 2012.
“The iron ore market is in deficit until 2012, but tips into growing surpluses in 2013 onwards as supply growth accelerates,” Citigroup analysts Clarke Wilkins, Craig Sainsbury and Daniel Seeney said in a note to clients. "Delaying Australian unapproved projects by 12 months would dramatically reduce the surplus in 2013-14.”
Also affected would be Fortescue Metals Group (ASE:FMG), which is the third-largest iron ore exporter in Australia.
All of this could also have a negative impact on the global steel market, where steelmakers would bear the brunt of the tax, and whatever they end up passing on to the enduser will result in inflation.
I have a better idea, like all governments, the Australian government needs to become smaller, and that way they don't have to have such a negative impact on the rest of the world, as all governments do.
The oppressive tax is scheduled to start in 2012.
Wednesday, May 19, 2010
Did BHP (NYSE:BHP), Rio Tinto (NYSE:RTP), Vale SA (NYSE:VALE) Iron Ore Pricing Strategy Backfire?
The quick change in the economic scene has put pressure on iron ore producers BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RTP) and Vale SA (NYSE:VALE), as the surety that the commodity bull market would continue on unabated could come back to haunt them.
While there is no doubt the commodity bull market will keep going, the corrections and probable short-term drop in demand could hurt the companies.
Some China observers think the three iron ore producers may have believed China would continue on with their double-digit annual economic growth, but I would be surprised if that was so, as many economists and China leaders have said they think it would be closer to the upper single digits.
With the growing inflation and housing market challenges growing, China is taking steps which could cut their annual economic growth in a way that could cause some short term pain to them.
Even a drop in growth of one or two percentage points in a country as large as China would have dramatic impact on the three companies.
The change in the way iron ore is priced is a good move over the long term, but in the short term, as we probably will soon see, it isn't as favorable to the businesses.
Iron ore pricing was recently changed from a benchmarking system of a year, to that of three months in most cases, and to a smaller degree - one month.
Even short-term this would and will benefit the iron ore miners, as long as prices continue to go up. If not, they're going to get hit hard by a fall in prices, which at this time is likely to happen.
While there is no doubt the commodity bull market will keep going, the corrections and probable short-term drop in demand could hurt the companies.
Some China observers think the three iron ore producers may have believed China would continue on with their double-digit annual economic growth, but I would be surprised if that was so, as many economists and China leaders have said they think it would be closer to the upper single digits.
With the growing inflation and housing market challenges growing, China is taking steps which could cut their annual economic growth in a way that could cause some short term pain to them.
Even a drop in growth of one or two percentage points in a country as large as China would have dramatic impact on the three companies.
The change in the way iron ore is priced is a good move over the long term, but in the short term, as we probably will soon see, it isn't as favorable to the businesses.
Iron ore pricing was recently changed from a benchmarking system of a year, to that of three months in most cases, and to a smaller degree - one month.
Even short-term this would and will benefit the iron ore miners, as long as prices continue to go up. If not, they're going to get hit hard by a fall in prices, which at this time is likely to happen.
Thursday, May 6, 2010
Alcoa (NYSE:AA), BHP (ASX:BHP), Rio Tinto (LSE:RIO) Looking to Expand Outside Australia
The outrageous 40 percent super tax proposed by Australian officials has major mining companies like Alcoa (NYSE:AA), BHP (ASX:BHP) and Rio Tinto (LSE:RIO) looking elsewhere to expand.
Rio Tinto, commenting on their recent expansion in Canada, said the initiative shows "the attractiveness of investing in Canada," a subtle note to Australian politicians that they don't consider the country the best place to expand.
Rio is expanding in the Quebec-Labrador region via its subsidiary Iron Ore Co. of Canada, where it'll increase its yearly capacity to 22 million tons by 2012, a 4 million ton a year rise.
Iron Ore Co. of Canada is now the largest producer of iron ore in the country.
Rio Tinto, commenting on their recent expansion in Canada, said the initiative shows "the attractiveness of investing in Canada," a subtle note to Australian politicians that they don't consider the country the best place to expand.
Rio is expanding in the Quebec-Labrador region via its subsidiary Iron Ore Co. of Canada, where it'll increase its yearly capacity to 22 million tons by 2012, a 4 million ton a year rise.
Iron Ore Co. of Canada is now the largest producer of iron ore in the country.
Wednesday, May 5, 2010
Vale (NYSE:VALE) Profits Up 18 Percent
Vale SA (SAO:Vale5) (NYSE:VALE) had earnings in the first quarter increase by 18 percent as demand for iron ore surged from steelmakers.
Revenue for the quarter grew from $5.42 billion last year to $6.85 billion in this quarter, while profits rose to $1.6 billion, or 30 cents a share, from $1.36 billion, or 26 cents a share the same quarter last year.
The gains are directly related to increasing iron ore demand and the inability to supply all of it in the world, which allows for higher prices and better profits.
Most demand is coming from China, and iron ore needs will grow at an estimated 10 percent there in 2010. Approximately 57 percent of iron ore and pellet shipments of Vale go to China.
Vale's major competitors are Rio Tinto Group (ASX:RIO) (LON:RIO) and BHP Billiton Ltd. (ASX:BHP) (NYSE:BHP).
Revenue for the quarter grew from $5.42 billion last year to $6.85 billion in this quarter, while profits rose to $1.6 billion, or 30 cents a share, from $1.36 billion, or 26 cents a share the same quarter last year.
The gains are directly related to increasing iron ore demand and the inability to supply all of it in the world, which allows for higher prices and better profits.
Most demand is coming from China, and iron ore needs will grow at an estimated 10 percent there in 2010. Approximately 57 percent of iron ore and pellet shipments of Vale go to China.
Vale's major competitors are Rio Tinto Group (ASX:RIO) (LON:RIO) and BHP Billiton Ltd. (ASX:BHP) (NYSE:BHP).
Wednesday, April 28, 2010
Vale SA (NYSE:VALE), BHP Billiton (ASX:BHP) and Rio Tinto (ASX:RIO) Pressing China on Iron Ore Prices
Vale SA (NYSE:VALE) (SAO:VALE5), BHP Billiton (ASX:BHP)(NYSE:BHP) and Rio Tinto (ASX:RIO) (NYSE:RTP) have reportedly threatened China that they will cut off iron ore supplies if the steelmakers in the country don't accept the price demands they're offering, according to the China Iron & Steel Association.
The major three iron ore producers in the world have sought price increases from between 90 percent to 100 percent, as demand for iron ore grows around the world, with China being the largest consumer of iron ore.
All of this started when the mining companies broke with the past practice of selling iron ore on annual contracts and negotiated a 90 percent increase in price with mills in Japan.
In a counter move, China has said they have begun an investigation to see if the three large iron ore producers are monopolizing supplies.
Apparently China has about two months of iron ore stockpiled as of the latter part of March, which means the pressure ramping up with only about a month left at this time.
Demand for steel is estimated to grow by over 10 percent in 2010, which has resulted in a growing demand for iron ore in competing countries and businesses.
The major three iron ore producers in the world have sought price increases from between 90 percent to 100 percent, as demand for iron ore grows around the world, with China being the largest consumer of iron ore.
All of this started when the mining companies broke with the past practice of selling iron ore on annual contracts and negotiated a 90 percent increase in price with mills in Japan.
In a counter move, China has said they have begun an investigation to see if the three large iron ore producers are monopolizing supplies.
Apparently China has about two months of iron ore stockpiled as of the latter part of March, which means the pressure ramping up with only about a month left at this time.
Demand for steel is estimated to grow by over 10 percent in 2010, which has resulted in a growing demand for iron ore in competing countries and businesses.
Tuesday, April 20, 2010
AK Steel (NYSE:AKS) Iron Ore Price Warning
After a warning from AK Steel (NYSE:AKS) on the potential negative impact of iron ore prices on their second-quarter resulst, the shares quickly dropped 6 percent on the guidance.
AK Steel qualified the statement by saying they're referring to if the price of iron ore exceeds the current 30 percent iron ore price increase assumed by the company.
Much of this stems from a global iron ore price not being set at this time for 2010, and until that happens, there is no way of knowing what the earnings of the company will be for the quarter.
“While AK Steel only buys a small amount of their iron priced to global, there is a formula for the rest that is loosely based on the global price,” said Michelle Applebaum, head of a steel-research firm in Highland Park, Illinois.”
This is typical of how this earnings season is going, as investors are looking at guidance more than the numbers reported because of the terrible year last year, which in many cases can make the results appear better than they really are when contrasted with the year before.
So even though AK Steel improved from their $73.4 million loss from last year during the same quarter, posting earnings of $1.9 million or 2 cents a share, over the loss of 67 cents a share last year, investors want to know what the company sees going forward, and what they see doesn't inspire a lot of confidence at this point, although it still has to play out before we know for sure.
AK Steel qualified the statement by saying they're referring to if the price of iron ore exceeds the current 30 percent iron ore price increase assumed by the company.
Much of this stems from a global iron ore price not being set at this time for 2010, and until that happens, there is no way of knowing what the earnings of the company will be for the quarter.
“While AK Steel only buys a small amount of their iron priced to global, there is a formula for the rest that is loosely based on the global price,” said Michelle Applebaum, head of a steel-research firm in Highland Park, Illinois.”
This is typical of how this earnings season is going, as investors are looking at guidance more than the numbers reported because of the terrible year last year, which in many cases can make the results appear better than they really are when contrasted with the year before.
So even though AK Steel improved from their $73.4 million loss from last year during the same quarter, posting earnings of $1.9 million or 2 cents a share, over the loss of 67 cents a share last year, investors want to know what the company sees going forward, and what they see doesn't inspire a lot of confidence at this point, although it still has to play out before we know for sure.
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