Which Iron Ore Companies Benefit from this Price Environment?
While a strong supply side and weaker demand growth scenario had pushed iron ore prices to a ten-year low in early April, disruption in shipments resulting in tighter stocks at ports led to improvement in prices since then.
Any sustained recovery of iron ore above $60–$65 per ton seems to be unlikely, given the structural nature of the supply surplus that is flooding the markets.
Chinese iron ore futures have been rising lately due to tighter iron ore stocks at Chinese ports. This is prompting steel mills to order more shipments.
The residential construction sector accounts for over one-third of the total construction spending in the US (SPY), making it a major end steel consumer.
China’s iron ore port inventory reflects the supply and demand balance. It reflects the safety net and the imbalance between the iron ore supply and the steel mill demand.
While iron ore prices held steady in May and June due to declining port inventories, production cuts would be detrimental to the raw material prices.
According to the China Iron and Steel Association, China’s 2015 crude steel output could decline by as much as 2%. This estimate is lower than CISA’s March estimate of a 1.1% decline.
According to data released on June 22 by the WSA, world crude steel production totaled 139 million tons in May. This is a 2.1% decline year-over-year.
Iron ore demand closely relates to the manufacturing sector’s performance in China. A slowing pace of manufacturing does not bode well for already-depressed iron ore prices.
Iron ore prices have corrected from mid-June levels and are currently trading at $61 per ton. This is 6.2% lower from mid-June’s levels.
The total sorghum production in the world is expected to be about 54.1 million metric tons in the 2014–2015 season. The US is the top producer.
The hard red winter wheat prices rose slightly in May to $5.40 per bushel—compared to $5.36 per bushel in April 2015. The overall yield is expected to rise.
Soybeans account for about 26% of the acres used to plant principal crops in the US. About 83.7 million acres were used to plant soybeans.
Corn prices have fallen since 2012. They dropped to a low point of $3.09 around September–October 2014. The corn stockpile rose more than anticipated.
There are several factors that can impact agriculture commodity prices—weather conditions, global demand, plantings, global production, and government programs.
With its energy assets likely to be transferred to a new entity, the company’s leverage ratio could fall. But the energy business took a bigger toll on the company’s overall value.
Earlier, Freeport-McMoRan had considered third-party financing for oil and gas exploration. It also looked at equity participation by other companies in specific projects.
These factors suggest that Freeport-McMoRan might have timed its exit strategy from the energy business quite well.
The Eurozone flash PMI released by Markit on June 23 gives an encouraging outlook for the Eurozone. An increase in the Eurozone’s PMI is a positive sign for the global copper industry.
In May, China’s merchandise exports and imports fell. Lower Chinese exports signal weak global demand, while a fall in imports is associated with weakness in the Chinese economy.
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