BHP: Support for iron ore prices
BHP (BHP) expects strong price support for iron ore prices from China. BHP’s Minerals Australia’s president, Mike Henry, stated that iron ore and coking coal (KOL) prices should sharply rebound before February 2018 as buyers replenish their stocks.
BHP believes that while China’s steel production might fall in the short-term due to winter cuts, record margins should drive the premiums for high-quality ore.
Rio Tinto: Winner from switch to high-grade ore
Rio Tinto (RIO), Australia’s second-largest iron ore producer, said that it should be a big winner from China’s switch to high-grade iron ore. It also mentioned that this same shift could spell trouble for Fortescue Metals Group (FSUGY).
Rio Tinto’s chief executive officer, Jean-Sebastian Jacques, said that while the company is positive about “China in the medium to long-term, there could be a slowdown over the next six months.” He feels that weakness in infrastructure, construction, and auto demand should lead to slowdown during the next six months.
Vale: Taking advantage of differential
Vale SA (VALE) mentioned during its investor day in December 2017 that China’s fight against pollution has led to a huge variance between low-grade and high-grade material. To take advantage of this differential, Vale is increasing the proportion of higher-quality ore from its mines.
It also mentioned that a price level of $60–$70 per ton is a good level for the iron ore industry, below which the efficient miners (XME) can make decent margins without incentivizing high-cost production to come into the market.