Thanks James, my very thoughts. I did some background reading and it seems everything now hinges on where the bottom is for the price of iron ore. It's a bit like the recent search for the bottom for the supermarkets. Iron ore at less than $100/tonne is low but having broken that significant barrier will it slide now to circa $80/tonne. Once again broker targets seem way off the mark. Posted by Houses and Holes in Commodities, Iron ore price at 12:56am on May 12, 2014 From Reuters:
“A lot of buyers are holding back. They feel the market will drop further,” said a Shanghai-based iron ore trader.
“Many traders and even mills are offering their cargoes in the market so supply is huge.”
“With current prevailing weaker sentiment, we’ve adjusted our Q2 2014 average forecast down $4 to $116 but remain upbeat for a price recovery in the coming months as seasonal Chinese demand improves,” ANZ bank said in a note. “We have long been saying we see 2014 as being the year when iron ore supply will finally accelerate ahead of demand, pushing prices below $100/tonne,” CLSA commodity strategist Ian Roper said in a report.
“As we move into oversupply, the market will become increasingly challenging for suppliers who’ve only recently entered the market while prices were high,” said Roper, who sees global iron ore supply growing by 140 million tonnes this year, mostly from top producers Australia and Brazil.
“I don’t think $100 can be a support level. The chance of prices falling below that is increasing and we may see it happen in May,” said the Shanghai trader.
That rising curve of over-supply would have obvious implications for iron ore prices and the Goldman team, like many others, see it falling back to around $US80 a tonne next year – and staying there as the expansion in production capacity continues.
…A separate piece of research focused on the “extraordinary fixed cost leverage” of Australian producers…While Goldman says iron ore exports will continue to rise strongly – 19 per cent this year and another 9 per cent off that expanded base in 2015 – it says the lower prices will lead to a $US4 billion decline in revenue.
The fixed cost leverage that the report is focused on shows up in a $US10 billion dive in pre-tax earnings.
…Obviously the miners – most notably Rio Tinto and BHP Billiton – are addressing the productivity challenge and the compression of their margins by making massive and continuing reductions in their cost bases while still lifting their output.
…The challenge is somewhat more acute for smaller players and even more acute for aspiring producers.
Morning all. Cuki my thoughts on LOND are pretty fundamental that they're on a year low and the current SP is so far from the consensus broker targets that they're either heading for a matching rerate on the said targets or the SP is due a bounce! I've gone in modestly and averaged around the mid-40's. A year or two back I was scratching my head on TNI which were stuck in the mid-20's against consensus broker targets far in excess like this one and suddenly they shot up...no guarantee the same would happen clearly but those are my thoughts since you asked bud.
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