Metals analysis

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BHP Billiton locked four-five potential targets for purchase

According to the report from Reuters, AlbertoCalderon, CBO of BHP Billiton, the global largest mining enterprise said that the company owns about U.S.$18bln of cash presently and it will use most of the cash together with most loans to purchase the large-scale opponents. The words of AlbertoCalderon may means that the global mining enterprises may start a new round of acquisition.

AlbertoCalderon said that currently BHP Billiton has locked four-five targets for purchase, which are all large-scaled firms in mining, petroleum and natural gas industries. It is learned that BHP Billiton will take some actions in the future 12 months. AlbertoCalderon disclosed that “the acquisition is not pressing for the company, but the company has done many preliminary works for it”.

Analysts believed that Freeport-McMoRanCopper&Gold (Freeport) as the largest listed company in copper industry located in US will be one of targets of BHP Billiton. The company’s copper cost is low and the gold business is also large-scaled. At present, the total market value of Freeport is U.S. $29bln. Analysts thought that if BHP Billiton decides to buy Freeport, the offer will be bound to be lower than the previous acquisition offer of BHP Billiton, but the specific amount will be very large. Currently Freeport officials rejected to make any comment on this issue.

Analysts believed that Canada’s PotashCorp will be also one of targets of BHP Billiton. The former is a supplier for fertilizer raw materials and has been seeking for the opportunities to develop the new market. The spokesman of PotashCorp said that he had heard the scandals about the takeover of BHP Billiton, but refused to comment. Additionally, analysts forecasted that the potential targets of BHP Billiton also include AngloAmericanPLC and XstrataPLC, but both of them did not make any response to this matter.

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Coking industry appeals to adjust coking coal export tax

Due to the demand shrinkage in coking coal market and domestic overcapacity, insiders of coking industry proposed that the country should adjust export tax properly to expand export volume.

According to the statistics, the coking coal production was 189mln tons accumulatively in the first seven months this year, down 6.3% year on year and the total export was at 283,600 tons, down 96.6%, a negative growth for 11 consecutive months. Except the weak demand in international market, the high export tariff on coking coal in China also led the significant drop of coking coal export.

Huang Jingan disclosed that the overcapacity of coking coal is seasonal and regional, added the export tax adjustment not only can stabilize the domestic market, but also play an important role in making enterprises join the international competition, promote the technical progress and improve the quality of products.

Currently China’ s coking coal market mainly depends on the spur of the growths of domestic fix assets investment, but steel industry constantly reduce or limit production, which will intensify the contradiction of coking coal overcapacity. It is expected that the coking coal market is not positive in H2.

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Baosteel initiatively decreased price for November

Baosteel issued EXW price policy of some major products for November on October 10, presenting the downward tendency generally. The drops differed from 250 yuan per ton to 500 yuan per ton, at the same time, as for some products, it released preferential policy for the ordering in October. Market participants estimated that under the downward tendency of steel market, Baosteel’ s pricing had to go to the market, but its differentiable brand advantage showed strong resilience. Meanwhile, it can be seen from the market after National Day that the market is difficult to go out of downward situation.

Reporters learned from Baosteel sales department that its pricing for November presented general falling state. Thereinto, heavy and medium plate products such as heavy plate, ship plate, boiler pressure steel decreased 400-500 yuan per ton, general carbon HR products declined 400 yuan per ton, machinery steel reduced 500 yuan per ton, CR products cut 400 yuan per ton generally, pickle products dropped 250 yuan per ton, the falls of hot-dipped galvanized, electricity coat zinc, color-coated and electronic steel ranged from 300 yuan per ton to 400 yuan per ton. Meanwhile, Baosteel issued the preferential policy for CRC and HRC ordered in October, with 100-350 yuan per ton.

According to the observation of some agencies, the domestic steel market continued the sluggish state after National Day, the settled price dropped continuously in downward tendency and social inventory of some steel products presented significant increase. Especially plate products, the social inventory is relatively large and the HR plate inventory has reached more than 1.1mln tons in Shanghai market, which will affect the plate products’ price tendency in later market and the fluctuation of the whole market. At the same time, with the drop of raw material price in upstream industries, the cost pressure on steel mills is weakening gradually. Therefore, even if the steel price presents the continuous falling, the initiative of steel mills in reducing production will not be strong, which is unfavorable for the balance of supply and demand.

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Iron ore buyers will dominate the future negotiation

Although the source noted that Vale, BHP Billiton and Rio Tinto will require increasing 30%-35% for the iron ore price of 2010-2011, China’s domestic insiders believed that the next year’s ore price will slightly fluctuate based on the current price and not present significant adjustment.

Due to the reverse of buyers and sellers market, market produced differences with the price for next year. In the past several years, the international market usual reach a common ground on the price up or down every year and only exists controversy in decreasing or increasing extent.

Previously Goldman Sachs, Merilyn Securities, UBS, JPMorgan and other international investment banks also predicted successively that the long-term contract price of global iron ore may increase 10%-20% in 2010.

According to the expansion plans of mining enterprises, international mining industry insiders estimated that the global iron ore will oversupply 300-400mln tons in 2010, which is the largest forecasting since 2002.

Shan Shanghua, general secretary of China Iron & Steel Association (CISA) told reporters said “in the following years, the international iron ore market will present the situation of oversupply and the market will be dominated by buyers rather than sellers”.

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Iron ore index is popularly promoted with the start of annual negotiation

TSI index provides a foundation for long-term contract pricing to floating pricing and if index pricing is adopted, the annual iron ore long-term contract negotiation will not be needed.

On October 20, Steven Randall, president of TheSteelIndex, a subsidiary of SteelBusinessBreifing, and his colleagues introduced the company’ s iron ore TSI index enthusiastically to the delegates of steel companies, iron ore trading companies, mining enterprises and investment banks all over the world.

With the start of iron ore negotiation, shareholders who intend to change the traditional iron ore negotiation mechanism begin to be active, nevertheless, there is a long way to make it, because the index pricing is not accepted by China’ s steel enterprises especially China Iron & Steel Association (CISA).

CBN reporters learned that currently there are three relatively influential iron ore index in the international market, that is, Steel Business Briefing’ s TSI index, MetalBulletin’ MBIO index and Platts’ s.

China, as the largest iron ore buyers shows no interest in index pricing and index trading presently. Shan Shanghua, general secretary of CISA restated recently that China hopes to maintain long-term contract trade, even expects to remove spot trade.

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BHP-Rio released report for Q3, miners may lift iron ore negotiation price

Driven by the recovery of global steel industry, especially China’s excessive import of iron ore, BHP-Rio released the financial report for Q3 this year successively. Thereinto, BHP iron ore production set a record high in Q3 and Rio Tinto’ s output of iron ore grew 12% year on year. Analysts believed that the current iron ore production of BHP-Rio will affect the coming negotiation on ore price.

The performance reports of BHP-Rio present the strong iron ore demand. According to the report of BHP Billiton, the iron ore output set the record high of 30.10mln tons, up 1% compared with the same period last year. Rio Tinto stated in the performance report that “the company’s iron ore output has peaked 47.5mln tons presently, up 12% year on year”.

On October 15, BHP Billiton and Rio Tinto both claimed that the plan for JV enterprise changed. BHP and Rio Tinto decided not put iron ore sales into JV enterprise and they will independently undertake the latter’s all production, which indicated that China would negotiate with Rio Tinto and BHP Billiton respectively.

The aforesaid insider said that with the reviving of EU and US steel industry, the three ore giants will be emboldened in pricing. He told reporters that the “China price” may be difficult to be recognized. Meanwhile, according to the usual experience, in the progress of iron ore negotiation, the three ore giants will promote the ore price to fluctuate significantly, the market surrounding will be more serious and the operating risks in steel industry will enhanced.

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How far is iron ore from “China mode”?

The iron ore negotiation of 2009 ended in the sigh of steel enterprises. China’ s goal of 40% reduction was helpless, except 36% preference of FMG, the three ore giants did not make a concession, so China’ s steel enterprises had to buy ore from spot market. Recently principal of China Iron & Steel Association (CISA) proposed to establish “China mode” in the new round of iron ore negotiation.

CISA explained “China mode” three important points. Firstly, the settlement time of iron ore trade is shifted from "April 1 every year-March 31 next year" to "Jan.1-Nov. 31", secondly, insist on the long-term contract, quantity-price interaction and preferential price with large quantity, thirdly, unified price, to determine an iron ore price (FOB) in different area, quality and mining enterprises and once settled, the price should be carried out by all enterprises and traders.

Shan Shanghua, secretary of CISA said that “China’ s steel mills do not ask steel enterprises in other countries and regions all over the world to refer to China’ s price, but they will not blindly follow up the inked price by other enterprises”. Shan pointed out that the agent system is required for carrying out the unified price. Industry insiders suggest that in the new iron ore negotiation, China should adjust and determine target based on economic situation and the supply & demand changes in future iron ore market.

The great dependence on imported ore, low concentration of steel industry, deficient competitiveness of steel enterprises and etc are all deep reasons to restrict iron ore negotiation. The related principal of CISA said that although facing with many difficulties, China as the largest iron ore market in the world should make a breakthrough in establishing new negotiation mechanism on the basis of its actual demand.


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A set of China's investment projects in Australia approved

According to the introduction of Australian officials, during the period that Li Keqiang, vice premier of State Council interviewed Australia, Australian government approved a set of China’s investment projects, including Yanzhou Coal Mining Company Limited to buy Australia Felix Resources Ltd..

It is introduced that Australia Felix Resources Ltd. is a listed company of Australian Stock Exchange, valued AU$3.4bln. At present, the company operates four coal mines, with the production of 9.3mln tons of raw coal in 2008. Two coal mines are being built which are set to output 12mln tons and there are also four exploration projects, with the total amount of coal resource of 2bln tons. Yanzhou Coal Mining plans to buy 100% shares of Felix Resources. The investment project has been approved by Foreign Investment Review Board (FIRB) recently.

Additionally, Baosteel is also approved to share interests with Australian Aquila. Aquila is also a listed company of Australian Stock Exchange, valued AU$1.7bln, including the major assets of five coal mines, three hematite and one manganese ore. Baosteel intends to buy 15% shareholdings of Aquila with AU$286mln, being its second largest shareholder.

Another approved investment project is China Guangdong Nuclear Power Holding Co.,Ltd. (CGNPC) to purchase the equity stake of Australian Energy Metals whose major assets are eight uran ore projects in North and West Australia. According to the agreement, CGNPC is scheduled to buy less than 70% shareholdings of Energy Metals and the investment totaled AU$70mln.

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Steel production rally fast, but price present down-trend

China’ s crude steel production rallied fast in the recent several months, while the net steel import has not changed apparently. The domestic steel market faces great pressure. In September, domestic steel index dropped dramatically, approaching to the lowest level in November last year. Industry experts warn that domestic steel enterprises should pay full attention to the demand and supply changes of the market, actively adjust the production and products structure to adapt to market demand.

Since this year, China’s steel production grew steadily. China’s crude steel output decreased 6.89% in H2, 2008, but the production amounted to 420mln tons in the first nine months this year, up 7.51% year on year. Thereinto, the daily output increased to 1.648mln tons in June from 1.329mln tons in Jan. and reached 1.69mln tons in September which inclined 32.97% from that in October last year, equivalent to 617mln tons of annual production. Luo Bingsheng, executive vice president of China Iron & Steel Association (CISA) believed that the steel enterprises and all departments should attach great importance to the fast growth.

The production increased, but the price presented down-trend. Data showed that since May this year, steel price rose and the price composite index reached 108.19 points in late August this year, but dropped to 102.65 points in September, which is basically in line with the lowest level of 102.3 points in November last year.

Industry insiders considered that the price drops directly attributed to the steel oversupply and the gloomy state of steel export. According to data from Customs, China exported crude steel of 16.723mln tons in the first nine months, down 98.3% year on year. However, owing to the falls of international steel price, China’s steel import surged. The import reached 18.09mln tons in the first nine months, up 36.6% year on year.

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Jigang-Laigang suspend trading, Shandong Steel integration may adopt three-in-one mod

In the evening of November 8, Jigang and Laigang announced that “they are preparing for the assets restructuring, while both of them suspend trading from November 9 and Shandong Steel had purchase Rizhao Steel in September, which meant that the integration of Shandong Steel starts formally”.

Industry insiders forecasted that Shandong Steel may take after the restructuring mode of Hebei Steel, putting Jigang, Laigang and Rizhao Steel in one and Jigang is more likely to become the platform of the integration.

“The production line of Jigang and Laigang is similar and if the one is chose as platform of integration, the possibility of Jigang is larger with its stronger comprehensive strength”, a steel analyst said.

According to the data in Q3, the total assets of Jigang reached 28.8bln yuan, while Laigang was 16.2bln yuan accumulatively, additionally, the incomes of Jigang was at 18.7bln yuan in the first three quarters, while Laigang stood at 20bln yuan in the same period.

Besides, Jigang claimed a few days ago that it planned to issue less than 650mln stakes with 4.48 yuan per share for transforming the projects of converter and rolling mills.


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Ore giants' alliance to form, China needs seeking for breakthrough

Once Rio Tinto and BHP Billiton succeed in establishing JV, they will monopolize the iron ore resource worldwide further. At the same time, steel enterprises will be in disadvantage position for speaking in the negotiation, especially China’s steel enterprises who have not shared stocks with Australian miners.

Although China Iron & Steel Association (CISA) had issued the negotiation strategy and Rio Tinto showed friendliness to China on November 2, CISA still seems to lag behind in the starting line of negotiation of 2010.

On November 10, source from iron ore spot market noted that with no signal of production cut in domestic steel industry and strong iron ore demand, the spot price of imported ore from India firstly recovered to U.S.$100 per ton since mid-August, which exceeded 27% from long-term contract price of 2009. As for the bad situation, Luo Bingsheng, vice president of CISA admitted publically that “the three ore mines are the important targets for China, but China is in disadvantage stance in the negotiation. Three ore mines monopolize iron ore supply highly, so they can take many ways to affect price, which China is in the state of scatter”.

In view of the current situation, industry insiders pointed out that China’s steel enterprises should seek for new breakthrough just like last year. The latest data from Customs indicated that Australia, Brazil, India, South Africa and Ukraine became China’ s five largest importers in the first nine months this year, thereinto, the import increase from South Africa and Ukraine reached 144% and 91%, while it seems to ease China’ s dependence on the three ore mines. Analyst said that China can evade BHP and Rio’s strong attitude to seek breakthrough from Vale.


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Steel capacity shift to coastal regions is general trend

Whether Steel Industry Adjustment and Restructuring or the Steel Industry Development Policy in revised stressed that steel capacity will shift to coastal regions. “it is a big trend”, Li Xinchuang, director of Planning and Research Institute Ministry of Metallurgical Industry told reporters.

With the historical reasons, most steel mills of China are located in cities presently and the layout is very unreasonable. Currently, the situation of oversupply is very serious in North of China and other mainland regions, while the coastal areas in the south with the booming demand are lack of production, which lead large quality of iron ore and steel to transport to and fro. The long-distance transportation not only added logistical cost, but also enhanced the contradiction of railway transport. Coupled with the pollution problems and urban expansion, it is the most urgent problem for steel enterprises to shift capacity to coastal areas.

The layout of Japan’s steel enterprises has a significant reference. The firms mainly lay in coastal regions and have great cost advantage in the obtaining of resource and energy, so the global competitiveness is very strong.

Therefore, Steel Industry Adjustment and Revitalizing proposed to promote the removal of urban steel mills to decrease environmental pollution. Till 2011, the capacity of steel enterprises along the sea will account for more than 40% of total production nationwide and the industrial layout is optimized apparently. The revising Steel Industry Development Policy also put forward that the unreasonable layout of steel industry will be improved till 2015 and the layout will be in line with the resource supply, transportation layout and market supply & demand in 2020.


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Shangang substantial integration starts

According to the introduction of Shandong Steel (Shangang), the company established purchasing, sales, capital and operation as well as coordination centers recently and appointed leading members for the four centers.

Zou Zhongchen, chairman of Shangang said in a business integration conference that it is necessary for Shangang to carry out the integration of core business and critical resource. The establishment of four centers marked that Shangang’s business integration starts.

Zou said that the business restructuring aims at realizing synergistic effect and seeking for maximum benefit. Shangang targets for trial operation before the end of 2009 and official operation in 2010. The integration is not a simple business overlay or copy previous mode, it must ensure exerting great effect.

For Shangang, the core business integration will be a reform and creation of management systems, such as globalized purchasing strategy, scientific as well as standardized purchasing mode. Principals from Shangang said that the company will continue taking the low-cost strategy, seriously analyzing the keystone of cost reduction and profit improvement, and etc. trying to start the integration well and fast.


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Steel future contracts broke 10trl yuan

On November 20, steel future and spot risks management senior was held by Shanghai future exchange in Hangzhou. It is learned that since the list of March 27, up to November 18, the steel future contracts reached 246mln hands accumulatively. Till the close of November 20, the accumulative contracts of steel futures broke 10trl yuan.

It is learned that the conference aimed at helping steel enterprises to build the sense of risks management, making firms initiatively and effectively use future market.

Huo Ruirong, vice general manager of Shanghai future exchange introduced the overall situation of steel future operation. Since the list on March 27, scale of steel future grew stably, price fluctuated moderately and the tendency closely linked with domestic capital market, steel spot price as well as steel index of Shanghai and Shenzhen stock market. Data showed that the relevance of future price was 0.9 before October and 0.93 after October.

With the gradual expansion of market scale and the increase of capitals, Shanghai future exchange has implemented a series of supervising measures and it will improve the current system to ensure the foundation of steel future market.


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CISA will tighten iron ore import standard

Under the pressure of three ore giants lifting ore spot price, China began to speed up layout for negotiation. Well-informed personnel revealed that according with the steel industry’ s iron ore trade ore regulation issued in Feb. this year, CISA will release new added contents recently. It is learned that the supplement will tighten iron ore import standard, involving 70 steel enterprises and 42 traders with import licenses.

This move can control excessive import and prevent speculations, at the same time, it can help change the disadvantage position of China side in the negotiation.

The aforesaid personnel disclosed that the supplementary part will be finalized after the study of CISA and CCCMC, and then member meeting will be held. Once member enterprises vote through it, it will be firstly implemented in member enterprises.

Analysts said in the interview that the aforesaid supplement will help China to regulate market orders and build a fairer trade surrounding for domestic iron ore market. What is more, it can prevent excessive iron ore import and prevent three ore giants from controlling iron ore market order, and thus enhance China’ s speaking right in the negotiation.

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Quality of China imported Indian ore was worried

Starting from 2006 to October 2009, Xiamen Inspection and Quarantine checked out 228 batches of unqualified ore, weighed 9.04mln tons and valued U.S.$913mln, the fraction detective is 60.2%, 54.2% and 40.3% correspondingly. Thereinto, the unqualified ore from India accounted for 157 batches, 5.44mln tons and U.S. $540mln, with the rate of 67.9%, 63.6% and 67.8%. The amount and rate of unqualified Indian ore is large and the quality of Indian ore makes people worried.

Xiamen Inspection and Quarantine analyzed that the imported Indian ore has three quality problems currently. First, quality decreased: the ore with the quality of 62%-63% is prevailed and the ore with quality below 60% is increasing gradually. The main indicators such as iron, water, silicon dioxide, granularity, aluminum oxide, Phosphorus and sulfur are not in line with contract requirement. Secondly, sundries contained in ore, thirdly, short in weight, up to 2,000 tons maximum.

In a bid to ensure the quality safety of iron ore and avoid losses, Xiamen Inspection and Quarantine raised suggestions for import and export enterprises. Firstly, choose suppliers with large scale, well credit standing and perfect quality management system as commercial partners. Secondly, acquire the origin of ore and grasp the base situation about mines’ qualities before signing contracts and mark names of mines clear in the contract. Thirdly, cautiously sign payment terms, regulating to pay after inspection to avoid problems in compensation with unqualified ore. Fourthly, set inspection terms before pre-shipment in the contract, asking third party inspection body to supervise shipment.

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FMG correct itself to keep iron ore price inked with China

After the deadline of the financing agreement between FMG and China passed, there are many versions about whether FMG to fulfill the price agreement of 35% reduction inked in August with China Iron & Steel Association (CISA).

Previously, it is reported that Forrest, CEO of FMG said that as China failed in reaching financing agreement before the end of September, the iron ore long-term contract price settled with China had been invalid. Industry insiders regarded the statement as ending agreement unilateral.

However, when the statement was reported widely, FMG corrected itself that it is discussing with China’ s buyers on whether to supply iron ore preferentially, added whether to continue or cancel the preference will be determined after the last batch of iron ore is delivered to China this year.

An anonymous analyst pointed out that the rising iron ore spot price made FMG fell the long-term contract price unfavorable, but it did not offend China with the little things, therefore, its policy seems to be disordered and iterative.

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Mine giants required ore price to increase 10%-25% next year

Insider learned the latest progress of the negotiation said that the global several mine firms required boosting 10%-25% for ore price next year based on the contract price of this year, which may increase the steel cost in auto, construction, home appliance and other commodity.

China consumed about 65% of global seaborne ore. Presently China is trying to suppress the price of iron ore and coal which are the main raw materials in steel-making.

However, the insider learned the latest progress of the negotiation between steel firms and BHP Billiton, Rio Tinto as well as Vale said that steel demand is rallying and the iron ore supply is tight, which indicated that price is bound to hike.

Both sides may ink agreement in April of 2010 and the iron ore price may boost to U.S.$70-75 per ton. The price of this year was about U.S.$65 per ton.

The price rising on the spot market is beneficial to mining enterprises. BHP Billiton was eager to sell iron ore on spot market. The enthusiasm of Rio Tinto and Vale is not so high, but the counter-emotion is also dropping. Steel manufacturers hope to lock cost by contract price in order to be affected by the price increase.
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WSA appeals authority to examine BHP-Rio’s JV

Industry insiders believed that iron ore market must stay competitive.

World Steel Association appealed competitive administration organizations to fully examine the joint venture enterprises of BHP Billiton and Rio Tinto.

Ian Christmas, general secretary of WSA representing global steel makers said that “the binding agreement signed by Rio Tinto and BHP Billiton recently much differs from the proposal raised in early this year. It has main risks in restraining competition and its controlling position in the world’s seaborne ore market will become more unfair than the existing unsatisfactory state. The JV will make three-giant monopoly be duopoly”.

He unveiled that “the competition made market stronger and brought efficiency. The competition between steel enterprises has led global steel market to be healthier and brought benefit for steel consumers, therefore, it has promoted steel consumption to rise overall”, adding “we believe that the JV enterprise may seriously damage the market, so we called for all relevant competitive and administration regulators to make a serious examination”.

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