Tag Archive for mining

Bloomberg alert as Goldman Commodity Rout Snares Ships

Duluth Trip - May 2014 - MV Paul R. Tregurtha arrives in Duluth, by Pete Markham, on Flickr

Interesting transport economics in Bloomberg maritime news published on May 6, 2015.

The collapse in global rates for shipping commodities from the world’s mines to mills and utilities will persist until at least 2020 on a glut of vessels and stalling cargo growth, according to Goldman Sachs Group Inc.

Read “The World Shrinks for Goldman as Commodity Rout Snares Ships,” By Jasmine Ng at http://bloom.bg/1PpSTI5

A Few KEY POINTS.

1) The shipping lines have missed out on transferable economic lessons learned by North American railroads these past three decades.

2) Strategic planners need to balance capacity they add to their Balance Sheet to the likely downside of market demand

3) TOO MANY SHIPS “From the iron ore pits of Western Australia and Brazil’s Sudeste to the coal pits of Indonesia and South Africa, mining companies have experienced the end of the bull market in commodities,” Lelong and Cai wrote in the report dated May 6. “Now the shipping industry is feeling the impact.”

The daily charter rate for a Capesize vessel slumped below $10,000 from a peak of more than $100,000 in 2008, according to Goldman. “There’s still this structural overcapacity in dry-bulk shipping”… Goldman cited slumping rates for hauling iron ore from Western Australia to China, described as the busiest dry-bulk trade route in the world. The estimated cost of shipping one ton sank from $44 at the peak in early 2008 to $4.40, it said. Global demand for seaborne iron ore, thermal and coking coal may expand only 2 percent this year

4) HOW LONG The slows growth will likely last into 2018. That compares with an average of 7 percent between 2005 and 2014, Goldman said.

Summary Observation

The impact of too much ocean shipping capacity has direct implications as well for many global pending rail freight projects. Too much rail capacity is not a smart business plan. Emerging nations have to adapt to the new commercial realities.

What do you think?

ArcelorMittal today sees a global steel glut

Here is more market evidence that marginal mine and railway & new port projects based on selling to China and other steel markets are still stalled.

Could be for as much as 1,000 or so days in some places (that is the day after day code term for about three years. Sounds a lot longer when you think about waking up so many times still hoping for a markets return.

The URL is http://www.mining.com/arcelormittal-cuts-profit-expectations-for-2015-amid-steel-glut/

Key alerts by ArcelorMittal include the following: in the European market, “ArcelorMittal sees steel demand growing much as 2.5%, but it is not as optimistic when it comes to the rest of the world.” ArcelorMittal lowered its expectations for growth in global steel use to 0.5% to 1%this year from its previous business forecast of perhaps 1.5% to 2%. It expects U.S. demand to contract as much as 3% this year. And the company projects that Chinese sales might expand as little as 0.5%. A HALF PERCENT! The U.S. slower growth expectation likely reflects in part “dumping” by certain foreign companies. Perhaps? Sent from my iPad Jim

Iron ore global glut — Latest bad news suggests four years of very low prices

Iron ore mining in India by Peter Craven, on Flickr

Are we paying attention? This assessment below, if true, will shut off a lot of hoped for iron ore mine and rail products from Africa to Mongolia. Mine executives hoping for a return to market demand prices of $90 and higher are betting upwind based on the evidence this past two years.

Mining Weekly picked up the following iron ore demand/supply information from different sources. Reuters is one source. Bloomberg another. The predictions for a higher iron ore price market keep getting worse. Up to half of iron-ore output by miners outside the three mega producers in Australia and Brazil may be at risk of closure or at least significant production and export cutbacks. This will occur with global demand set to peak at about 1.4 billion tons next year, according to Goldman Sachs analysts. Production volumes among top miners – Vale, Rio Tinto and BHP Billiton – may not be at risk, the bank said. But their profit margins are dropping further.

Goldman Sachs, in contrast, predicted that the rest of the iron ore industry (and the railways and maritime forces that service the export industry) is “now facing an existential challenge..”

Goldman analysts Christian Lelong and Amber Cai said in a report that “We expect seaborne iron ore demand to peak in 2016 as the displacement of marginal Chinese iron ore production fails to offset a contraction in China’s domestic steel consumption.”

Goldman cut its 2015 iron-ore price estimate by 18% to $52 a tonne. It forecast $44 in 2016 and $40 in 2017 and 2018. That is down 29% to 33% from previous estimates. Other sources like Moody’s estimate that the delivered Iron ore price could drop to $40 this year and next. No one is seriously talking out loud anymore about a price surge up towards $90 or more.

Current China delivered price for Iron ore hit $46.70 on April 2. That is based on the current spot-based price system — compiled by Goldman Sachs. Strategic planners with projects depending upon iron ore new export projects coming on line before 2018 — or maybe even staying in business. — really need a Plan B. Their current plans are based on the iron ore world changes seen about four to ten years ago.

What is your prediction?