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Posts Tagged ‘spot’

Bulk offers miners some relief

September 23, 2011 Comments off

“The London Metal Exchange, where copper, aluminium, zinc, nickel, lead and tin change hands, is providing minute-by-minute insight to the subsequent share price moves of large mining companies. With LME metals in free fall, the shares of companies such as BHP Billiton, the world’s largest miner by market capitalisation, have followed.

With copper down 8.6 per cent and nickel a hefty 17.5 per cent on Thursday, extending big losses earlier on the week, it is understandable why miners’ shares are tumbling. More could come if LME prices continue to drop, as they are in early Friday trading. But that exclusive focus on LME metals ignores the real cash-cows of the mining sector: iron ore, thermal coal and coking coal. Prices are holding rather well this week.”

Source: Financial Times, September 23 2011

Observations:

  • For London-listed miners the LME-metals account for 33% of earnings, with 53% from iron ore and coal (thermal and metallurgical).
  • Nearly all commodities lost 5% or more of their value in the spot market on Thursday and Friday.

Implications:

  • Falling commodity prices signal doubt about continued economic growth is starting to affect traders, despite miner’s comments that demand is staying strong. The falling premium of lump ore over fines confirms the view that we might be past the peak of prices.
  • Miners will need to decide again about hedging (part of) their production to benefit longer from high prices. Long term supply contracts for bulk materials do serve as a sort of hedge, but metals-prices could also be hedged using derivatives.

©2011 | Wilfred Visser | thebusinessofmining.com

Mittal says rise in ore price will cause steel ‘volatility’

April 30, 2010 Comments off

‘Laksmi Mittal warned yesterday that the impending large rise in the cost of iron ore would lead to “new volatility” in the steel industry by pushing up prices of the metal – a development, he said, that could harm the competitiveness of some ArcelorMittal European plants.’

Source: Financial Times – April 30 2010

Observations:

  • The benchmark system for iron ore pricing is being replaced by a more flexible quarterly pricing mechanism linked to the spot market. The reduced certainty on iron ore purchase prices for steel makers will cause similar uncertainty in the price of their output.
  • Steel makers are looking for various ways to reduce the new risk they are encountering. The most important will be to pass price increase on to customers, increasing steel prices globally.

Implications:

  • Reduced certainty on price of iron ore will impact investment decisions for both iron ore miners and steel makers, forcing them to adjust the time value of money in project valuation.
  • Steel makers will increasingly opt for vertical integration, trying to secure a stable raw material base.