Now this seems like a bad idea.
Some of China’s iron ore traders are suspending imports of ore from Vale (VALE), Rio Tinto (RTP), and BHP Billiton (BHP), the three companies that dominate the world’s iron ore production. The decision to stop importing ore, China’s National Business Daily reported today, April 7, comes after a request from the China Iron and Steel Association to weaken the major iron ore suppliers’ monopoly on the market.
About 110 Chinese companies import iron ore—70 of them are steel mills—and it’s not clear at the moment how many companies have decided to stop importing ore or whether any major importers have signed on. The request from the China Iron and Steel Association to boycott Vale, Rio Tinto, and BHP Billiton hasn’t received support from the county’s big steel makers.
It’s not hard to understand why.
China is the world’s largest steel producer. It has successfully won market share from extremely efficient competitors in Korea, India, Europe, and the United States. Many of those competitors have excess production capacity at the moment. The U.S. steel industry is running at about 70% of capacity, for example. And you’d like to reduce iron ore imports and cut into Chinese steel production so that competitors can recover some of the ground that they’ve lost?
Estimates say that China currently has enough iron ore stockpiled to meet demands from steelmakers for about two months.
The call for a boycott comes as Chinese ore importers and steel makers try to push back against recent contracts that have seen iron ore prices climb by 80% to 100%. That price increase is a reflection of a move away from annual fixed price contracts to quarterly deals that reflect current spot prices for iron ore. Hardball Chinese “negotiating” tactics—including handing out 14-year prison terms to Rio Tinto employees on charges of bribery and spying—have helped kill the old system.
I can understand why China’s iron and steel industry would want to put that genii back in the bottle, but it just isn’t going to happen.
Vale, Rio Tinto, and BHP Billiton understand who has the real power in this market.
Yclept,
Assuming your scenario is correct, and I don’t doubt it as a possible future scenario, then China will be sitting pretty. All they have to do is completely remove the dollar peg, and they’ll suddenly be sitting on the most valuable currency on Earth.
Don’t ask what happens to the dollar then. It’s ugly.
The value of manufactured goods is swinging more and more towards proximity and access to raw material, energy, and cost to ship product to consumers. As labor rates (adjusted for efficiency) begin to level world wide, the model that China has been able to exploit (low labor rate) over the past several years is becoming less effective. Eventually, energy and shipping costs (raw material in and finished product out) will probably dictate competitiveness between potential suppliers. This does not bode particularly well for China long term as they have insufficient raw material and energy potential.
The problem with MON has been the agricultural commodity prices have not shown any sign of going up. Rising oil prices haven’t helped the agricultural sector. Until agricultural commodity prices show some life, MON’s price will remain dead in the water.
flgator,
Re. MON – Just in case you have not come across this article.
http://online.barrons.com/article/SB127059304915972955.html?mod=BOL_article_full_popview
Barron’s Take | WEDNESDAY, APRIL 7, 2010 “We Still Dig Monsanto”
“… The world’s biggest seed maker announced a disappointing forecast on Wednesday. But we think the stock can still stand tall….
Analysts expect Monsanto stock to gain more than 20% by year end. And the company has a long-term earnings growth rate of 15%. This is fostered by the value of the company’s intellectual property, as it produces new and more efficient seeds able to fight off pests above and below ground, as well as produce higher crop yields. As Barron’s wrote late last year, these new offerings should boost its dominant seeds business, which will contribute as much as 85% to company profits by 2012, from roughly two-thirds today. (See Barron’s, “Sowing the Seeds of Recovery,” Nov. 30, 2009.)
With the approach of these new products, and controversy about its pricing policy on herbicides receding (a division which itself will contribute less to the bottom line going forward), many on Wall Street expect the shares to surpass $100, a gain of almost 50% from current levels. (See Weekday Trader, “Monsanto Plants Seeds for a Stock Recovery,” March 16, 2010.)….”
They also have yet to settle several shipping disputes that could cost 300+ million… or more
Fsumf is the only Ausie Iron ore producer willing to “play ball” with the Chinese (Which cost them dearly last year as they stuck to the contracts and sold little or NO ore on the spot market)
The Chinese may see this year as an opportunity to work more closely with FSUMF to up FSUMF production, to help offset the RIO, VALE and BHP “lock” on the market… but until and unless FSUMF approaches 100million tons a year, they will continue to be seen as a “bit” player.
It may be the last year that the Chinese have an opportunity to help build FSUMF into an alternative to the big 3, but it would take an enormous investment on their part, and (Due to restrictions that are currently in place regarding how much the Chinese can own in any particular company in Australia) any deal would have to be a non equity, hybrid, non conventional setup. Hard to say if either the Chinese or FSUMF could come up with something that would be comfortable for both parties.
This company has a very long way to go to gain traction and respect as a producer, having continually come up short on production targets, and a considerable degree of debt coming due in the not to distant future, not to mention a court case by the equivalent of the SEC pending, A court case regarding the death of two workers in a cyclone, an external safety audit as a result of a death two months ago, an inability to establish cash and credit to build out the 2nd and 3rd phase of the mines and ports infrastructure to take them above the 55Million tons per annum that they SHOULD have reached already, very few institution investors beyond what they started with, a continually negative rating from most researchers (Though it seems that the tone is softening a bit)
Of course, as Jim has said in the past, “I wouldn’t bet the kids collage tuition on this company.”
Furthermore, Andrew Forest does have some rather questionable history, but it seems to some degree, that his wagging tongue has been somewhat under control lately.
My personal opinion is that this year we will see a greater involvement from the Chinese in FSUMF, just don’t know how it would play out.
off subject…..is this a good entry for MON. it is near it’s 52-week low. looks like growth is going to slow down to 15% a year, but their seed business is strong….maybe a little early to play as a turn around.
how will this affect fortescue?
And this follows the mornings report out of Port Hedland that exports (Mostly Iron Ore) out of the largest Iron ore Export port in Austrialia rose 13% from last month (Mostly headed to China…)
http://www.phpa.wa.gov.au/cargo_stats.asp
ROFLMAO!!!
Thanks China! Our steel industry needed a boost!
I guess China is forgetting the “iron rule”. He who has the iron makes the rules…