According to Amanda Saunders and James Thomson, an unexpected jump in Chinese steel production that has bolstered iron ore prices is unlikely to last and miners also are likely to be hit by rising costs as the Australian dollar strengthens and oil prices jump.
Steel production in China rose 3 per cent in March, the first increase since January last year, National Bureau of Statistics figures released on Friday show.
Analysts said daily production of crude steel in March was close to record highs.
While Chinese gross domestic product numbers on Friday suggested the Chinese government had managed to stimulate steel demand by engineering pick-ups in manufacturing, housing sales and construction, data suggested the bulk of the production went towards exports rather than domestic demand.
China’s steel sends out surged 30 for every penny year-on-year and 23 for each penny month-on-month.
The ascent in steel generation has driven an iron metal value surge of around 55 for each penny since the six-year lows of $US38.30 a ton on December 11 a year ago. The iron metal spot cost is floating at $US60 a ton. The hop set a flame under the offer costs of the enormous iron metal diggers. BHP Billiton offers surged 19.2 for each penny a week ago to close at $19.28 on Friday, while Rio added 11.4 for every penny to close the week at $48.20.Fortescue Metals Group offers hopped 14.2 for each penny, notwithstanding taking into consideration a 4.7 for each penny fall on Friday. The stock shut at $3.04 on Friday. Be that as it may, there are concerns the steel generation blast – and China’s enhanced financial standpoint – may not last.
Liberum Capital said last week that demand in China might have been “front-end loaded and will taper off”. Rio Tinto chief executive Sam Walsh warned at the company’s annual general meeting in London on Thursday night that the recent rally was unstainable.
Rio and BHP are set to report March quarter production numbers this week.
“I’ve said all along that we expect the iron ore prices will be volatile,” Mr Walsh said. “That’s what we’re seeing.”
What is more all analysts agreed.
McKinsey & Co said a week ago iron mineral would exchange in the middle of $US45 and $US50 a ton this year.Goldman Sachs was considerably more bearish, determining iron metal to end the year about $US35 a ton.
Citi forecast an average price of $US38 for 2016 and $US35 for 2017 and 2018.
What’s more, iron metal diggers may likewise find that their costs creep higher
Fortescue chief executive Nev Power said last week at the company’s quarterly production results that “ongoing reductions will be more challenging, given the strong Australian dollar and oil price”.Fortescue has cut cash costs in the last 12 months, but there are signs the pace of reductions is slowing and further cuts will be more difficult.
“Clearly, the next dollar is going to be harder than the last dollar.”
chief financial officer Stephen Pearce said.
Steel prices had risen 37.5 per cent since late December, but HSBC analysts said that was unlikely to last.
“We think the current steel price rally is likely to end soon, given mills are ramping up output following improving profitability and traders have finished restocking activity.”
Overall,falling steel costs would ordinarily mean a lower iron mineral cost.
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