From Mongolia to South Africa and Brazil to West Africa the “go go” former strategic outlook for big new rail and port projects that bet on iron ore NEED SERIOUS DUE DILIGENCE rethinking.
This is an economic message I have been beating the drum about with my customers, friends, and readers for the past three years.
Only the strongest and lowest cost per ton-km railroad supply chains will be the sustainable economic competitors if the Citigroup strategic projections are correct
That translate to big train heavy axle technology if you as a rail and port logistics chain want to be winners going forward. Who is up for this challenge? ————-
From a Bloomberg report on May 26, 2015 “Global iron ore demand will contract over the 2020s as steel consumption growth in China peaks, according to Citigroup Inc.”
This independent due diligence estimate marks a long-run price forecast for the raw material by 32 percent.
To read the entire article, go to http://bloom.bg/1PLH5Fs
Here is below added background from a multiple of sources on this subject from my previous experience and files.
1) Global iron ore demand will contract as steel consumption growth in China peaks over the next decade according to Citigroup Inc.
2) The long-run deliver iron ore price estimate was cut to $55 a metric ton from $81 as the world’s major mining companies will add overtime to the global over supply. The expert prediction is by analyst Ivan Szpakowski. He suggests that from 2016 to 2018, prices may average $40.
3) SUPER CYCLE REVERSE “The next decade is shaping up to be a complete reversal of the past decade,” Citigroup said.
4) Marginal higher cost per ton producers and supply chains are the ones most threatened In this commercial scenario, the marginal producers will likely falter Small train higher operating cost railways won’t cut it in that kind of global competition shift. This will particularly impact planners who continue to hold onto rail design plans that use light weight less than 33 metric ton axle loads and short trains.
As one specific example, Mongolian Gobi rail planners need to wake up and adjust to a Plan B big train engineering design that some of us suggested in 2006. Twenty five or less tons per wagon axle just will not get the job done against stronger global supply chain comoetition.
5) “Perhaps the greatest structural challenge facing the iron ore market is the rolling over of Chinese iron ore demand, driven by declining domestic steel demand and rising scrap availability,’ the bank said. ‘ ‘As a result, despite growth from other emerging markets, we forecast a decline in global iron ore demand over the 2020s.’’
6) New Growth Predictions out towards 2025 Demand for seaborne iron ore in China will likely slump to 982 million tons in 2025 That marks a decline from the revised expected high market demand that will likely peak around an estimated 1.2 billion tons in 2020 according to this Citigroup forecast.
Long supply chains feeding ore towards China and India by seaborne delivery to ports by rail will over the next decade see a drop over the period.
7) In the short term, prices for the ore at a 62% content at Qingdao will likely see periods of up and down movement. As an example, iron ore recently was paying around $47 a dry ton in April for delivery but then rose to about $63 a ton this week reports Bloomberg. Most suppliers need to get paid more than $90 in order to be financially sustainable as unsubsidized iron ore businesses.
THE STRONGEST MAY PROSPER. OTHERS WILL STRUGGLE
‘‘The two lowest-cost producers per ton of iron ore are Rio Tinto and BHP”… Other sources like Goldman Sachs have previously reported this. These two giant mone companies have a pipeline of extremely low-cost mostly brownfield capital projects “that should see their combined production exceed 900 million tons by 2025”. These two source suppliers would under these calculations account for “roughly 70 percent of global import demand,” Citigroup predicts.
For the other 30%, including a big chunk from VALE, the other grand projects may struggle to see if their logistics chains can compete.
This fundamental predicted market demand and supply model means that a bunch of rail and port blueprints around the world “need a Plan B”.
Are they holding or to their old Plan A or adapting?
Those who reach out for help and change will be the ones to prosper.
What do you think?
Sent from Jim’s iPhone