Iron ore dropping

[hobo-jo]

ok, I was not including stores of wealth [such as bullion]. I was primarily referring to industrial uses and comparing it to other similar hard assets in the basket like platinum or silver. In that comparison, both platinum and silver have significantly more industrial uses than gold.

By the way, I like your screen name- hobo...despite you dealing with gold/silver bullion. I don't know anyother hobo's that have such a hobby

Fair enough, definitely agree that Gold is much less of an industrial metal than silver and platinum. Gold's lack of 'practical' uses & resultant stock to flow ratio are attributes that make Gold useful as a wealth reserve asset.

Once I have enough precious metal bricks I will build my house out of them

 

[knightm]

Iron Ore is a Steel at these prices

My Iron Jaw Dropped at this comment.

 

[Deltaberry]

Iron Ore is a Steel at these prices

Few views you can take.

Short-term, if the AUD goes up, commodity punters will switch to punting iron ore prices because one is kind of a proxy for the other.

Medium-term, China housing construction is important.

Long-term, you'd have to work out at whether if prices fall more, producers such as Atlas Iron will be impacted. Once the likes of Atlas and Grange are impacted, there are few producers left in Australia and prices should find a floor.

 

[Intrinsic_Value]

I'm well aware of Gold's uses. Note that I was responding to peter fraser's comment "The only demand for gold is in jewellery" which is factually incorrect. Technically jewellery demand makes up around 50-60%, with industrial & investment demand (coins, bars, ETFs and Central Banks) making up the balance. However, most of the jewellery demand is from China and India, arguably a lot of this is purchased as a store of wealth, a savings vehicle or investment asset, despite it being purchased in the form of jewellery. So even to claim firmly that most is used (only) for jewellery is misleading at best given that it's a mixed use asset.

Interesting that both Russia and China, two countries plagued with turmoil of over the last century are both big accumulators of gold.

 

[redwing]

Few views you can take.

Short-term, if the AUD goes up, commodity punters will switch to punting iron ore prices because one is kind of a proxy for the other.

Medium-term, China housing construction is important.

Long-term, you'd have to work out at whether if prices fall more, producers such as Atlas Iron will be impacted. Once the likes of Atlas and Grange are impacted, there are few producers left in Australia and prices should find a floor.

AGO was around $4.20 at its peak...now

 

[Intrinsic_Value]

Few views you can take.

Short-term, if the AUD goes up, commodity punters will switch to punting iron ore prices because one is kind of a proxy for the other.

Medium-term, China housing construction is important.

Long-term, you'd have to work out at whether if prices fall more, producers such as Atlas Iron will be impacted. Once the likes of Atlas and Grange are impacted, there are few producers left in Australia and prices should find a floor.

Short/medium term:
agree with you.

Long term: more complicated, more moving parts, iron ore is not just Australia.
Australian components will be influenced by
(a) market US$ iron ore price
(b) AU$
(c) China's strategic motives in allowing the big 3 to control production and price
(d) from (c) above, China's willingness to prop up local producers (China producers) at a loss
(e) foreign smaller player output relative to their foreign currency
(f) China's future internal consumption levels
(g) China's future exchange rate (given its a major global steel producer)
(h) seaborne travel costs.
blah blah blah

 

[mrdobalina]

AGO was around $4.20 at its peak...now

Their break even point is in the low to mid-$80's.... which is about where the price is at now.

 

[Intrinsic_Value]

If people want to touch iron-ore related plays then suggest the service providers to these mines.

They are being priced as though they will go bankrupt.

If they manage to continue to supply then they could be very good value.

 

[plusnq]

If people want to touch iron-ore related plays then suggest the service providers to these mines.

They are being priced as though they will go bankrupt.

If they manage to continue to supply then they could be very good value.

Which type of service providers are you thinking of? In my experience having worked in Mount Isa and the Gulf for a very long time, the production phase, which is where a lot of these mines are at, use the least number of personnel and services. The construction phase usually uses the most personnel and associated services.

Major maintenance works to re-equip a mine may also use a lot of services and personnel but these are less common than one might think.

Most of the mining services companies are down 30-40% and some have delisted. Given that most companies would usually build a bank with rising prices before increasing production further, and therefore needing more services, I would think you would see rising producer share prices before mining service companies. How many new major service contracts have been offered in the last year, I wonder?

So I am wondering what type of services you might mean?

Cheers

Shane

 

[KangaBanga]

flow on effects

First gold price came down in 2011, now iron ore is going down, AUD is also going down. Oil price is also going down.

Now even the ASX is going down as well.

China slowdown WILL be felt in Australia.

Tide is going out now and will wait for no man.

Which other highly leveraged asset class will be the next to go down? I wonder.

 

[z611143]

First gold price came down in 2011, now iron ore is going down, AUD is also going down. Oil price is also going down.

Now even the ASX is going down as well.

China slowdown WILL be felt in Australia.

Tide is going out now and will wait for no man.

Which other highly leveraged asset class will be the next to go down? I wonder.

Are you saying its going to be felt in the property marker here in AUS, or being slightly sarcastic with that wink?

 

[Intrinsic_Value]

Which type of service providers are you thinking of? In my experience having worked in Mount Isa and the Gulf for a very long time, the production phase, which is where a lot of these mines are at, use the least number of personnel and services. The construction phase usually uses the most personnel and associated services.

Major maintenance works to re-equip a mine may also use a lot of services and personnel but these are less common than one might think.

Most of the mining services companies are down 30-40% and some have delisted. Given that most companies would usually build a bank with rising prices before increasing production further, and therefore needing more services, I would think you would see rising producer share prices before mining service companies. How many new major service contracts have been offered in the last year, I wonder?

So I am wondering what type of services you might mean?

Cheers

Shane

very happy to have your view points.

I have exposure to:

Alliance Aviation (fly in fly out + other contracts)
Logicams (software)
Mc Alaleese (transportation)
Mineral Resources (processing + other)
NRW Holdings (purse service provider)
Southern Cross Electrical (engineering)

 

[KangaBanga]

Are you saying its going to be felt in the property marker here in AUS, or being slightly sarcastic with that wink?

US Fed is ending QE3(actually QE4 to be specific) this month, and since they are the top foreign direct investment country with >25% share of the FDI into AUS, we should see an impact just like in 2011/2012 when QE2 ended. Their stock market rise to such high levels is just all the extra liquidity from the FED flowing into stocks. So when the tap gets turned off, a drop will happen again.

ASX is already taking a beating, just like it did in 2011/2012 when QE2 ended. How much more of a beating will depend on when US decides to "print money" again.

So big questions are :
1) Will FED be able to do another round of QE?
2) Will China be able to contain its property downturn?(This time its not just property alone, Chairman Xi is putting corrupt officials on the "chopping block"

so no, not being sarcastic. I do think that China's slowdown would to some extent be felt in the property market in AUS, as it did back in 2011/2012.

 

[Freckle]

I do think that China's slowdown would to some extent be felt in the property market in AUS, as it did back in 2011/2012.

Agree. When you look at what drives a market it's usually the 10% of total size that is in constant churn. When half that churn (approx 46%) is investors then you need to understand how economic conditions both locally and internationally might affect activity. Much of the growth in RE markets globally can be attributed to printed money looking for a home. Aus is no exception.

A number of German banks are on the brink which implies many European banks are in worse shape. Corrections in property markets have the potential to trigger collapses in banks and trigger another GFC far worse than 08 primarily because there is little or no ammunition to fight another GFC. Financial systems are vulnerable and far weaker than they have ever been thanks largely to an ever increasing and historically enormous debt load.

CB's and Govt's are trying like crazy to ramp inflation to minimise this debt mountain but deflation is proving difficult if not impossible to counter. Think Japan.

We're one mistake away from the biggest crash we've ever seen. If investors leverage is greater than 60% I doubt they'll survive.

A 5% downturn in NZ RE effectively means NZ banks (Australian) will be insolvent. Australia will have similar numbers.

I expect when the correction comes it will be brutal.

 

[Intrinsic_Value]

If you were gutsy, this is the time you sell Syd/Melb properties, save up some cash, and buy some distressed assets from various iron ore and coal miners and do a Tinkler.

this is exactly what I am doing, but not mining companies.
Mining services and transport companies.

But only slowly slowly, things could still get worse.

No need to bet the house on it yet. Buy some, leave the rest in a bank account.

 

[Intrinsic_Value]

Which type of service providers are you thinking of?

So I am wondering what type of services you might mean?



Shane

so far NWH, SXE for the direct mining services.

SKE, PRG for indirect service companies.

MCS for ground transport (but this has quite high debt levels) (not all divisions related to resources)
AQZ for air transport

LCM for resource based IT applications

should also mention that the above holdings only represent around 15% of the portfolio combined.

 

[Intrinsic_Value]

China slowdown WILL be felt in Australia.

.

Markets are always forward looking.

With all the 'bad news'

Chinese stockmarket actually doing ok for this year (not great, just ok).

Why?
because maybe it has been sold down so much because of all the bad news.

My Chinese bank shares are doing ok and with great dividends with only low payout ratio's (unlike Australian banks with high payout ratios).

 

[Redom]

Agree. When you look at what drives a market it's usually the 10% of total size that is in constant churn. When half that churn (approx 46%) is investors then you need to understand how economic conditions both locally and internationally might affect activity. Much of the growth in RE markets globally can be attributed to printed money looking for a home. Aus is no exception.

A number of German banks are on the brink which implies many European banks are in worse shape. Corrections in property markets have the potential to trigger collapses in banks and trigger another GFC far worse than 08 primarily because there is little or no ammunition to fight another GFC. Financial systems are vulnerable and far weaker than they have ever been thanks largely to an ever increasing and historically enormous debt load.

CB's and Govt's are trying like crazy to ramp inflation to minimise this debt mountain but deflation is proving difficult if not impossible to counter. Think Japan.

We're one mistake away from the biggest crash we've ever seen. If investors leverage is greater than 60% I doubt they'll survive.

A 5% downturn in NZ RE effectively means NZ banks (Australian) will be insolvent. Australia will have similar numbers.

I expect when the correction comes it will be brutal.

Interesting analysis Freckle. Not as bearish as you, but do think some of what your saying may play out.

Re iron ore prices, most of the debate here has been on the demand side of the equation.

With prices at the levels they are now, i'm not sure whether our international competitors can remain in the market. They'd simply be losing money at this price and it can only last indefinitely. Australia and Brazil are the lowest cost producers and will remain in the market - but the Chinese producers, for example, may not find it economical to stay in the market. Once the international supply drip turns off, the price may increase.

Of course there's the demand story too. Going by this thread, it seems like there's quite a few counteracting forces there.

 

[Redom]

A number of German banks are on the brink which implies many European banks are in worse shape. Corrections in property markets have the potential to trigger collapses in banks and trigger another GFC far worse than 08 primarily because there is little or no ammunition to fight another GFC. Financial systems are vulnerable and far weaker than they have ever been thanks largely to an ever increasing and historically enormous debt load.

I expect when the correction comes it will be brutal.

This is very bearish - fingers crossed it doesnt play out, there'd be a lot of lives that'd be very seriously affected by this.

On a slightly more positive note, in the international space theres been a lot of work on financial regulation to promote a healthier banking sector. E.g. some of the Basel work: stronger capital requirements, improved liquidity, loss absorbers, etc. Europes played catchup to some of the healthier sectors (e.g. Australia).

Implementing some of these structural improvements in the banking system has caused considerable pain. They make it costlier for banks to lend, with the benefit of adding more resilience to the system. Some of the rate cuts (and QE) in Europe is because of the economic costs of this structural adjustment.

Fingers crossed its a more rosy outlook.

On the upside, low funding costs for the Aussie banks!

 

[KangaBanga]

Iron ore hits new five-year low

Iron ore hits new five-year low
Iron ore has slumped to a fresh five-year low, despite steel mills in China reportedly cutting output in October as the supply glut continues to weigh on prices.

Overnight the price of iron ore, measured for immediate delivery to the Qingdao port in China, fell 1.4 per cent to $US75.38 per tonne. On Thursday, Dallian iron ore futures, fell 1.9 per cent.

Iron ore has now lost ground for five straight sessions and has slipped 5.3 per cent this week. The steel-making ingredient has fallen close to 45 per cent this year.

With demand remaining weak and Beijing attempting to reduce pollution ahead of this week, steel producers in China reportedly cut production.

Large steel mills in China produced, on average, 1.631 million tonnes of crude steel a day between October 21 and 31, according to the China Iron and Steel Association, down 7.5 per cent from the previous 10 days.

"We expect Chinese steel production to reach 800 million tonnes in 2014 and 740 million tonnes in 2020 ? a 7 per cent decline," said Matthew Hodge, Morningstar's head of basic materials and energy.

Inventories remain low on the consumer side, ANZ senior commodity strategist Daniel Hynes said, which begs the question whether or not orders are coming through on the books.

"The lack of activity is particularly low even for an event like this where you do get traders sitting on the sidelines, it seems excessively quiet which is a little bit worrying," Mr Hynes said.

"It tends to suggest that demand is not there now, but certainly there is nothing coming through on forward order books as well, which would point to further weakness after the APEC meeting."

The outlook from steel mills and property developers in China is still weak so any rebound is going to be very mild, Mr Hynes said.

"They [haven't] suggested they are keen to re-stock or build any inventory into that normal high season period of demand that you get in November-December."

Earlier in the week, The FT reported that a 170,000 tonne cargo of 62 per cent fines from Pilbara was offered at $US76.80 in China but received no bids.

Read more: http://www.smh.com.au/business/markets/iron-ore-hits-new-fiveyear-low-20141107-11ibww.html

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Getting ugly for everyone except GINA
Perth property is starting to get hit, QLD economy and property likely next...
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