China has managed to keep its daily crude steel output in excess of 2 million tonnes since the middle of February, highlighted by a record high 2.13 million tonnes from April 21 – 30, according to the China Iron and Steel Association. The increased output was a result of an expected upturn in steel consumption, traditionally known to peak in the second quarter. However demand has been stagnated by the slowed pace of Chinese economic recovery, to the extent that China’s largest steel maker last week enacted its first price cut in nine months.
The iron ore price was $US126.40 a tonne in the middle of last week, reflecting its lowest level since last December and a full 20 per cent below its 2013 peak. Despite the lower costs, larger Chinese steel makers maintain iron ore stockpiles to meet at least one month's needs, while smaller mills tend to look no further than a fortnight ahead.
State owned iron and steel company Baosteel has an iron ore inventory of around two months, prompting some unconfirmed speculation the steel firm has been reselling iron ore. If some large producers sell arriving cargo not immediately required, they can avoid storage costs and reduce outlays on their future shipments. On a larger scale however, for instance the alleged resale estimate sitting at about 2 million tonnes over the past two weeks, there is the possibility that the upturn in steel consumption won’t immediately translate to higher Chinese exports for Australian miners.
Economic news
Australia's resources sector investment has been predicted to peak at $85 billion this year. Consulting Group Wood Mackenzie has forecast spending in the oil and gas sector will make up about 50 per cent of investment, followed by iron ore at 25 per cent and coal at 10 per cent.
Commentary
HSBC Chief Economist and former RBA economist Paul Bloxham spoke to FNN about the China story:
‘The main reason Australia has outperformed the west in recent years is because we’ve been exporting more to China, commodity prices have ramped up, and that’s supported our growth. Yes we’ve become more dependent on China, but we’re much better off being more dependent on China than the US, Europe or the UK like we used to be. So in the scheme of things the China story is definitely a positive one and indeed I think there’s more of an increase yet to come in the share of our exports that go to China. We’ve done estimates ourselves and we found that about 30 per cent of our merchandise exports last year went to China, by the time we get to 2020 we think that will be 40 per cent because the amount of investment that’s going on in the resources sector right now is so enormous and is very much a capacity that’s being built for Chinese demand. So the China story is going to be with us for quite some time.”
Concerning earnings
Transfield Services Limited
(ASX:TSE) has lowered its full-year profit guidance amid a slowdown in resources and infrastructure projects. The mining services company says it’s expecting net profit after tax, but before amortisation impairments to be between $62 and $65 million this financial year, down from previous guidance of between $85 and $90 million.
WorleyParsons Limited
(ASX:WOR) has downgraded its full-year earnings forecast amid softening demand for resource infrastructure. The group says it expects to report a net profit in the range of $320 to $340 million compared to underlying earnings of $345.6 million for the full year in 2012.
UGL Limited
(ASX:UGL) again slashed its profit guidance, with CEO Richard Leupen saying volatility in commodity markets has led miners to further delays on major projects, impacting revenues of UGL's engineering business. UGL dropped it full-year earnings guidance to between $90 million and $100 million after its quarterly review, having previously downwardly revised guidance to between $150 million and $160 million.
Ready, aim... Sandfire!
Sandfire Resources
(ASX:SFR) is reporting an increased mineral resource at its DeGrussa Copper-Gold mine in Western Australia. An additional 64,000 tonnes of contained copper and 93,000 ounces of gold has been added to its mineral inventory.
Woodside Petroleum Limited
(ASX:WPL) is monitoring on an offshore gas field in Mozambique that is five times bigger than its North West Shelf project. Chief executive Peter Coleman says discoveries in Mozambique over the past two years had shown an area of gas reserves totalling around 100 trillion cubic feet.
Aquila Resources Limited
(ASX:AQA) has received Federal environmental approval for its proposed development of the Anketell Port. The coal mining company has a 50 per cent stake in the port which is intended to facilitate its iron ore ambitions in Western Australia's Pilbara region.
Arrium Limited
(ASX:ARI) says its year-to-date sales are 23 per cent higher than the previous corresponding period. The iron ore miner expects to sell between 8.2 and 8.4 mega tonnes for the full year in line with previous guidance, as the iron ore price remained strong during the March quarter and a record of 3.14 mega tonnes of ore was mined.
From the mouths of majors
Rio Tinto Limited
(ASX:RIO) says a court decision to block the expansion of its Warkworth coal mine puts more than 150 New South Wales projects and tens of billions of dollars at risk. Energy chief executive Harry Kenyon-Slaney told media the NSW Land and Environment Court's decision has expansion potentially set a precedent that could jeopardise the broader economic development of the state.
Fortescue Metals Group Limited
(ASX:FMG) faces a battle with fellow iron ore miner Brockman Mining Limited
(ASX:BCK), who has applied to access its below-rail infrastructure. Brockman Mining has submitted a proposal to the West Australian government to explore solutions for the commercialisation of its Marillana Project in the Pilbara region.
