July, 17 2005
Iron ore market to remain in balance till 2010
THE biggest bull market in iron ore history culminated in a 71.5 per cent rise in iron ore fines prices in 2005.
Steel prices have recently started to fall and spot freight rates have collapsed.
What is the iron ore outlook? Is it all over for the market? "Definitely not," according to Mr Jim Lennon, analyst with Macquarie Bank, who made a presentation at the annual dry bulk shipping market outlook conference in London recently. The expert said China and China alone has driven the bull market in iron ore since 1990.
The sea-borne market has grown by 305 million tonnes, of which China has accounted for 250 million tonnes (mt) or 82 per cent; and since 2000, the country has accounted for as much as 93.5 per cent of growth, he pointed out, adding that China will continue to dominate iron ore sea-borne growth.
Forecasting that iron ore market will remain balanced to short up to 2010, the analyst said the market would be impacted by how quickly new projects can ramp up. Capital cost overruns and shortage of equipments and people would remain an issue.
While falling steel prices and more supply of iron ore will lead to lower iron ore prices in 2007 and 2008, high prices would attract (albeit, temporary) surge in Chinese and Indian iron ore supplies.
There has been a huge leap in world steel growth since 1999 - 268 mt during 1999-2004 versus fluctuating growth /degrowth during the previous five-year periods. China is the main, but not the only reason, for this growth.
China represented 56 per cent of growth since 1989, India 2.9 per cent, other Asia 11 per cent, Former Soviet Union 8 per cent, Latin America 4.7 per cent and Japan, West Europe and the US combined 10 per cent.
There has been a phenomenal growth in Chinese steel (crude steel production up 37.5 per cent year-on-year in May to annualised rate of 350 mt per annum), but it is now balanced between demand and supply.
Currently, world supply of steel exceeds demand, leading to production cuts and falling prices. Steel production cuts have now started to come through, but not in China, yet.
Chinese demand is unlikely to collapse anytime soon, according to Mr Lennon. He said growth rates are adjusting down as the Chinese Government puts the economy on a more sustainable footing to ensure continued growth. Due to quality problem and market saturation, China is unlikely to become a major exporter, but exports will rise despite government attempts to stop them.
Also, Chinese mills are unlikely to slash production between now and end of the year, but the pace of growth will slow as some loss making plants close.
Man charged with fraud in Iron Ore
Decks were cleared for the Tamil Nadu Crime Branch police to produce before the Court Mr Bhagbat Prasad Kwartia, accused in a fraud and forgery case involving the swindling of Rs 41 lakh.The Court of the Additional Sessions Judge, Cuttack refused to grant him interim bail for a month. Mr Kwartia was arrested by the Tamil Nadu Crime Branch sleuths with the help of the Orissa police from the College Square area here on 7 July.
Officials said Mr Bhagabat Prasad Kwartia, proprietor of the Chennai-based Prem Enterprises had opened another firm - Messrs Gold Rock - in the name of his wife Premlata Kwartia and set up branch offices of the two firms in Chennai.
Later, Mr Kwartia had approached a businessman there for finance by presenting documents on purported export orders worth Rs 1.8 crore involving iron-ore supply to China. He had also offered the businessman partnership in the deal, while receiving Rs 41 lakh from him.
Soaring stainless steel prices cripple projects
Contractors in the Gulf are being hit by a massive increase in the cost of high grade stainless steel.
While structural steel and rebar prices have cooled from last years historic highs, the surcharge on 316 stainless steel has rocketed to over US $2200 per tonne from just US $400 per tonne two years ago.
The price inflation is adding millions of dollars to the cost of several high profile projects throughout the region.
The product is often used on desalination and petro-chemical projects because it is highly resistant to corrosion.
It has also been specified for the cladding on the Burj Dubai tower, but designers are now understood to be reviewing the design as it has more than quadrupled in price since the project was first announced.
Many contractors are now trying to source alternative products for their projects, but some clients are insisting that the costly material is used.
Nobody is buying 316 grade stainless at the moment because the price of the components that go into it are sky high, so there is a massive surcharge on that particular grade, says Lance Brown, general manager, Corus Middle East.
The component responsible for these sharp increases is the metal element molybdenum, which has jumped up in price from US $14 000 per tonne in July 2003 to roughly US $80 000 per tonne this month.
According to Brown, Everyone is really confused with
what is happening to the price of molybdenum.
Molybdenum is used as an alloying agent as it enhances the strength of steel, making it harder and more resistant
to attack by various chemicals, as well as increasing its melting temperature.
In the Middle East, 316 grade stainless is used in highly corrosive environments like petrochemical facilities.
In the construction industry it is used for various applications, ranging from reinforcing bars to exterior cladding.
It is also used on many MEP jobs particularly desalination plants.
Anywhere you have cooling towers, its generally not accepted to use galvanised metals, so stainless steel is usually used. If its brackish or saline water, 316 grade stainless will be specified, so the escalation [in price] is having an impact, says Dr Gareth Lucken, operations and engineering manager at Drake & Scull.
He added: For items like plate exchangers the price has increased by 10-15% on the back of rising material prices, and there have been issues of availability, too.
The metal is becoming increasingly popular because of its performance. Its an exotic grade and it commands a
substantial premium, but the usage of 316 is rising rapidly, explains Brown.
The recent price inflation means that many contractors have taken big hits on projects because they have been unable to source 316 stainless steel at the price they have included in their original tenders.
AK Steel stock price jumps on takeover speculation
After jumping 8% Tuesday on possible takeover speculation, the price of AK Steels stock maintained most of that gain Wednesday and through mid-morning yesterday.
The speculation came in spite of a full-year earnings estimate downgrade from Merrill Lynch on Tuesday, which cut its projections for the flat rolled carbon and specialty steel producer to $1.50/share, or about $164.25m, from $1.80/share, or about $197m.
In the first quarter, the Ohio steelmaker posted net profits of $59m, or 54 cents/share. Its second quarter earnings are due to be released 26 July and AK Steel has said previously its operating earnings will be impacted by $5m because of the strike at Quec Cartier Mining, one of its iron ore suppliers.
AK Steel executives could not be reached for comment.
Published reports indicated some industry analysts were attributing the stock price run-up to takeover speculation by investors, although they also said a takeover was unlikely because of pension and labour issues. At the top of many lists as a buyer is US Steel, which has been seen by some as wanting to acquire a specialty steel producer.
A US Steel spokesman declined to comment on the reports or any interest the company might have in another steelmaker. Earlier this year, US Steel dropped out of the bidding for Canada's Stelco.
