I think we’ve just seen the end of the fixed long-term contract pricing system for iron ore. That pricing system may not know it’s dead yet. But right now it’s dead system walking.
Brazil’s Vale (VALE) has told domestic customers that it will raise iron ore prices by 40% in March and 40% in April. That will bring contract prices for these customers into line with iron ore prices on the spot market.
No waiting for the annual negotiations with Korean, Japanese and (until recently) Chinese steelmakers to set a price for long-term contracts.
Now iron ore for Brazilian customers on long-term contracts will sell at a price close to the spot price set by the global market. BHP Billiton has already signaled that it believes spot pricing is the future in this market. The Australian miner is trying to move the bulk of its business to this market-price system.
The consequences?
Huge increases in raw materials costs for steelmakers that will get passed down the line to their customers in the auto, appliance, heavy equipment, and construction industries.
And an intensification of an already intense effort by China, India, and other big iron ore consumers to find alternative suppliers beyond the big three of BHP Billiton, Vale, and Rio Tinto (RTP).
for a potentially great sleeper, check out iron ore company palladon ventures symbol pllvf on the tsx..n3401 report pea assessment currently has them at value of $14.00 per share..not including a larger area adjacent to them that they leased with significantly more ore..they are only 6 cents a share.all brand new infrastructure as well as over 2 million tons piled up ready to ship…new ceo dale gilbert just returned from china stating interest from multiple companies for a possible finance deal….SRK did their assessment..rated them as good as any infrastructure globally
Relative to the other steel makers, wouldn’t this benefit Nucor (NUE) which uses much less iron ore in producing its steel, since most of its mini-mills use scrap steel?
bet the kids college fund on, and is very risky (They hold ALOT of debt) but was just curious about what he thought about this minor…)
Benwobbles
I agree exactly.
Ed-
Can’t really tell with this stock as delayed quote on ASX dosn’t provide much insite.
Amtrend- They didn’t give in last year (Of all years that you would have thought they would)
They stuck together, that part of why the fight to NOT allow BHP and Rio to merge.
Fsumf was the only one to “give” in. I suspect because they want to prove to the Chinese that THEY are the minor partner that China should be working with….
Didn’t help them last year, not sure if thats the way to deal with the Chinese, It sure didn’t help FSUMF last year…..
Thats why I was hoping Jim might weigh in FSUMF is in his port and I was wondering what he was thinking, I noticed that in his blog, he refused to go there…. I know he thinks FSUMF is “not something to
Prediction…. This is going to backfire…. It will be a lot easier for industry and consumers to slow down than it will be for the big three to eat their huge building inventories. One of them will give in and prices will plummet.
It will be interesting to see how the spot pricing market develops. It will more than likely yield better numbers for the miners but with extreme volatility, who knows? Live by the sword, die by the sword
DJ,
When you see exceptionally large volume on any individual stock, the thing to watch for is whether it is buying or selling volume, and also whether any significant insider trades occurred on that day.
Buying volume isn’t necessarily a bad thing. Selling volume on the other hand could be a signal to get out.
Any thought on the above Mr. Jubak?
Looks like somebody took a 4.5% position in FSUMF today… very very unusual for this amount of shares to trade like this… Is it time to buy back ?
Funny that you should mention FSUMF. Very very odd (And I don’t think good odd) trading has been taking place.
I couple of weeks ago 30 million shares traded on the us adr in one day, very very strange volume. Today, the us ADR traded 3 million shares, again very very odd volume. Tonight (Thursday) 63 million shares traded on the ASX market. (Down .07 cents when the overall market in Astralia is up) 63 million shares is about 8 – 9 times normal volume… Something is going on, and as a holder of FSUMF, I don’t like it….. Something smells very fishy… and I think fishy in a bad way ….
I guess I am an eternal pessimest, cause I see a China with an over built infrastructure, and a planet in depression. ( maybe not Brazil ), further I see China as the only nation which can pull the global economy out of it’s slump, and China has a city, done, modern, with no people to live in it. Massively overbuilt ! And China has a weakenning banking system..
Who in the heck is going to buy the iron ore ?
Jim,
What are the implications on FSUMF? Is it likely that another deal will be struck with China (like the one that fell apart)?
That could give the little guys a bump. Little guys like FSUMF! (A Jim pick)
I would think you’d want to look at “smaller” producers who would be acquisition targets to, in essence, lock in prices by buying X% of said company
Sounds like this should improve the profit margins for the big three. Jim, would you say this would change your price target on Vale and BHP? since these are part of the Jubak’s 50, these news sounds like it is a good time to add to positions.