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25 Feb 2009, by Informa Insights
More weakness, not just volatility, can be expected in the world iron ore market, according to Alan Heap, Managing Director of Global Commodity Analysis for Citi Investment Research.
All the latest pointers are for further deterioration both within the developed world and critically for the iron ore market within China,” he says in an interview.
“Most worrisome is that as well as deterioration in underlying demand it’s clear there has been a huge inventory build of everything from finished goods including things like apartment buildings, right through to steel and iron ore within China.
“Meanwhile in the developed world the manufacturing side of those economies is also deteriorating rapidly.
“We expect Chinese steel production to fall by 2% in 2009, and for world output to drop by 8%.”
Mr Heap says that new iron ore suppliers in Australia and Brazil are going to struggle in this environment. A substantial iron ore inventory in China is proving “quite sticky”.
“It’s being whittled away slowly, but only very slowly. That’s putting further pressure on iron ore shipment volumes.
“It remains to be seen what happens to annual contract prices but clearly they’re going to fall. Spot prices have recovered slightly after falling dramatically late last year. And then as far as the operations themselves are concerned, most of the major producers now are curtailing production, some more so than others.
“From the smaller companies’ perspective, any company that’s looking to come to the markets for capital, debt or equity, is really going to struggle.
“Possibly the only source of salvation for those small and emerging producers is going to be increased investments from their customers, principally the Chinese steel producers.”
Mr. Heap says the world is seeing the early stages of quite a dramatic shift in pricing structures, with two very different tensions occurring.
“At this stage it’s not at all clear how the future pricing structures are going to unfold, but some other commodity markets give us some pointers.
“In the thermal coal market for example, we now have annual contracts, we have a tender market and we have a spot market all running reasonably harmoniously and simultaneously.”
Mr. Heap is to address the Global Iron Ore & Steel Forecast Conference in Perth on the 24th and 25th of March 2009.
He will discuss recent work by Citi Investment Research on the shifting competitive landscape in the iron ore industry especially as driven by exchange rates and freight rates.
“The collapse in freight rates in particular has really re-ordered the pecking order on the cost curve, shifting the competitive advantage back towards the international producers interestingly and putting the Chinese producers at an increased competitive disadvantage.
“The second area where we’ve being doing some work is in what we’ve called trough cycle prices.
“If we look at the marginal costs of production and likely margin compression, what does that imply for iron ore prices in the most bearish scenario that we can think of?”
The convention is a key event on the global iron ore and steel calendar where industry players can stay up to date on the global outlook for iron ore and steel demand and supply balance.
Industry leaders and expert will join together to comment on their future plans and release new announcements that can shift the balance of the market.
A number of key speakers will also address this year’s conference including: Sam Walsh, CEO of Rio Tinto Iron Ore; Russell Scrimshaw, Executive Director of Fortescue Metals Group Limited; David Flanagan, Managing Director of Atlas Iron Limited; Russell Tipper, General Manager of Aquila resources Ltd; and Barry Fitzgerald, CEO of CITIC Pacific Mining.
They will cover a variety of topics including: key pricing issues; the introduction of an iron ore index; challenges created by the current financial market; expansions; capital investment in new projects; and infrastructure challenges and optimisation.
Mr Heap will discuss the market outlook for iron ore in terms of future demand and supply. He will analyse the future price tendencies in an unstable global marketplace and what the industry can expect from 2009 and beyond.
Sam Wash will make a keynote address updating on projects of great strategic importance.
David Flanagan will discuss Atlas Iron Limited’s iron ore projects in the Pilbara and Pardoo region and their other developments in Pardoo, Abydos and Port Hedland.
Russel Tipper will also speak about the projects of his company, Aquila Resources Limited taking place in Pilbara, Red Hill, Mt Sutrt, Mr Elvire and Yalleen.
Barry Fitzgerald will present on the Sino Iron project. This is Australia’s most advanced magnetite iron ore development featuring large scale downstream processing. The company’s project will be constructed at Cape Preston in the Pilbara region. The company is focused on its license to operate in Australia and they intend to maximise the benefits of their linkes with China to add value to the Australian resources sector.
This year’s conference has promised to be better than ever and will include social and networking opportunities for attendees to meet local and international companies and forge new business relationships.
There will be representatives from representatives from all over the world such as Australia, China, India, United Kingdom, Hong Kong, Singapore, Indonesia, Brazil, South Africa, Japan, Malaysia, USA and Thailand.
There will be Gala Cocktail Reception within the exhibition hall at the conclusion of day one of the conference. This networking reception allows delegates and speakers to mingle, foster and renew acquaintances in a friendly and relaxed atmosphere.
The Official Conference Dinner hosted by Fluor Australia Pty Lt will take place at Fraser’s Restaurant Kings Park on Tuesday March 24.
To register for the Global Iron Ore & Steel Forecast Conference in Perth on the 24th and 25th of March 2009 please contact Informa on
Web: www.globalironore.com.au
Telephone +61 2 9080 4307
Fax +61 2 9290 3844
E-Mail: registration@staging.informa.com.au
To arrange a media pass, request more information or arrange speaker interviews at the Global Iron Ore & Steel Forecast Conference please contact:
John Wilson on 02 9080 4107 or john.wilson@staging.informa.com.au
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