Iron Ore Won't Rebound Any Time Soon

Why Iron Ore Won't Rebound Any Time Soon

Economists may teach that low prices and declining demand encourage producers to decrease supply, but the iron ore industry appears to have skipped class that day.

"The combination of a further increase in global iron ore supply this year and only subdued demand growth suggests iron ore prices will continue to drift lower," said Caroline Bain, an analyst at Capital Economics, in a note Monday. She forecasts iron ore prices at $60 a tonne by year-end, with risks to the downside. Iron ore touched a more than five-year low Monday of around $63.30 a tonne, although some forward contracts are already pricing it under $60.

Output has picked up over the past few years, encouraged by expectations China demand would continue to post strong growth and by low production costs in Australia and Brazil, she said. She noted Rio Tinto and BHP Billiton put their average production cost in Pilbara, where most of Australia's iron-ore production is located, at around $25 a tonne, compared with 2010-13 average market prices at $145 a tonne. Even at current prices, these producers are still profitable, Bain noted. Australia is the world's second-largest iron-ore producer after China.

Despite 2014's around 50 percent decline in iron ore prices, the big four producers -- Vale (Sao Paulo Stock Exchange: VALE'A-BR), Rio Tinto, BHP Billiton and Fortescue (ASX:FMG-AU) - continue to expand production and other companies are also bringing projects on line this year, she said, forecasting Australian production will rise 6 percent this year, although that's down from 2014's 20 percent rise.

Don't count on China

At the same time, despite China producers' higher costs and lower ore grades, production there isn't likely to see much slowdown, especially as many steel plants have "vertically integrated" operations, owning mines nearby, Bain said. Closures on the mainland are likely to focus on less efficient operations, leading to a leaner and meaner industry there, she said.

"The multinational producers will be only partially successful in their bid to oust higher-cost producers globally and oversupply will continue to weigh on prices," she said. At the same time, China's iron ore usage will stagnate at best, hit by a combination of high inventories and lower demand to use the metal as part of financing deals, she said.

Goldman Sachs also expects iron ore producers won't be able to count on China for growth, noting it's become a mature market.

"The decade-long love affair between China and iron ore is cooling. Chinese steel consumption has increased to unsustainable levels and is bound to decline," it said in a note Friday. "Significant overinvestment to date will ensure that the market is well supplied."

It expects a "long war of attrition" will be needed to balance the market, cutting its long-term price forecast by 25 percent to $60 a tonne.

The Oil Effect

Falling oil prices are also set to weigh on iron ore prices, as they result in "substantial cost reductions", and commodity prices are likely to fall to meet these new lower levels, Citigroup said in a note Monday.

It's also concerned about oil-fueled deflationary pressures affecting commodity demand. 

"Falling prices increase the real cost of debt repayments and could see increased defaults. This not only affects direct commodity demand, but also drives lower inventories and threatens commodity financing trade," it said, noting that falling commodity prices also leave companies with little incentive to build up inventories.

In a note earlier this month, the bank cut its 2015 iron ore price forecast to $58 a tonne from $65

Interest in Oil (as indicated through search volume) is Abnormally High at the Moment Due to Recent Price Decline

Interest in Oil (as indicated through search volume) is Abnormally High at the Moment Due to Recent Price Decline.

Looking at the google trends chart above, we can see Interest in Oil (as indicated through search volume) is abnormally high at the moment.



 This data tells us more people are searching for oil using google, likely correlation to investment therefore we can assume that people are looking to invest in oil and are researching or looking to purchase shares and futures commodities contracts online.



 Last time oil price was this low four years ago, price quickly rebounded and went in access of $150 US per barrel.

Gold looks to feature more prominently also the last few months, the Swiss Gold Referendum, Swiss Depeg (de-ceiling) and repatriation of gold by European central banks lately have all been popular news story's on-line.



By Joseph Gale

Miners to Reveal Impact of Iron Ore Price Slump

Miners to reveal impact of iron ore price slump

It is well and truly a buyer’s market in iron ore and this week we should find out the extent of the damage for some of the smaller players.

With iron ore prices now below $US70 a tonne after falling by half and still threatening to go lower, there are serious doubts that the full complement of miners will survive the downturn.

While the big, low-cost players Rio Tinto and BHP Billiton are still ramping up production, the smaller operators are struggling, with Atlas Iron admitting it was losing money in the December quarter until oil prices dipped and returned it to slim profitability.

Chinese Government-backed Citic has announced it will be writing down the value of its Sino Iron project in Western Australia by up to $2.2 billion and further writedowns of up to $2.3 billion have already been flagged by Atlas, Mount Gibson Iron, Gindalbie Metals and Grange Resources.

On Thursday it is the turn of number three player Fortescue Metals to outline its December quarter production figures and perhaps give some guidance as to its profitability at current prices.

Fortescue chief executive Nev Power has already been critical of WA government plans to offer a 50 per cent iron ore royalty rebate to smaller players while prices are below $US90 a tonne, a move designed to keep them going in a really tough market.

BC Iron’s second quarter production is also out on Friday.

Other struggling commodities may also produce some surprises with copper/gold miners OZ Minerals, PanAust and Sandfire Resources all reporting quarterly production on Wednesday, along with oil and gas companies Beach Energy and Oil Search.

While copper and oil have both been dropping, at least gold has been heading in the other direction, which may become apparent with struggling gold giant Newcrest’s quarterly production on Friday.

The focus will also be on continuing reaction to the European Central Bank’s more than €1 trillion stimulus package, and also inflation figures due on Wednesday.

Internet Will Disappear', Google Boss Eric Schmidt Tells Davos

Google Chairman Eric Schmidt is in Davos for the World Economic Forum along with other tech tycoons. Photo: The New York Times

Google boss Eric Schmidt predicted the internet will soon be so pervasive in every facet of our lives that it will effectively "disappear" into the background.

Speaking to the business and political elite at the World Economic Forum at Davos, Schmidt said: "There will be so many sensors, so many devices, that you won't even sense it, it will be all around you."

"It will be part of your presence all the time. Imagine you walk into a room and... you are interacting with all the things going on in that room."

"A highly personalised, highly interactive and very interesting world emerges."

On the sort of high-level panel only found among the ski slopes of Davos, a panel bringing together the heads of Google, Facebook and Microsoft and Vodafone sought to allay fears that the rapid pace of technological advance was killing jobs.

"Everyone's worried about jobs," admitted Sheryl Sandberg, chief operating officer of Facebook.

With so many changes in the technology world, "the transformation is happening faster than ever before," she acknowledged.

"But tech creates jobs not only in the tech space but outside," she insisted. Facebook this week released a Deloitte study that estimated the site's value to the global economy at more than $US200 billion.

Schmidt quoted statistics he said showed that every tech job created between five and seven jobs in a different area of the economy.

"If there were a single digital market in Europe, 400 million new and important new jobs would be created in Europe," which is suffering from stubbornly high levels of unemployment.

The debate about whether technology is destroying jobs "has been around for hundreds of years," said the Google boss. What is different is the speed of change.

"It's the same that happened to the people who lost their farming jobs when the tractor came... but ultimately a globalised solution means more equality for everyone."

Everyone has a voice 

With one of the main topics at this year's World Economic Forum being how to share out the fruits of global growth, the tech barons stressed that the greater connectivity offered by their companies ultimately helps reduce inequalities.

"Are the spoils of tech being evenly spread? That is an issue that we have to tackle head on," said Satya Nadella, chief executive of Microsoft.

"I'm optimistic, there's no question. If you are in the tech business, you have to be optimistic. Ultimately to me, it's about human capital. Tech empowers humans to do great things."

Facebook boss Sandberg said the internet in its early forms was "all about anonymity" but now everyone was sharing everything and everyone was visible.

"Now everyone has a voice... now everyone can post, everyone can share and that gives a voice to people who have historically not had it," she said.

Schmidt, who said he had recently come back from the reclusive state of North Korea, said he believed that technology forced potentially despotic and hermetic governments to open up as their citizens acquired more knowledge about the outside world.

"It is no longer possible for a country to step out of basic assumptions in banking, communications, morals and the way people communicate," the Google boss said.

"You cannot isolate yourself any more. It simply doesn't work."

Nevertheless, Sandberg told the assembled elites that even the current pace of change was only the tip of the iceberg.

"Today, only 40 per cent of people have internet access," she said, adding: "If we can do all this with 40 per cent, imagine what we can do with 50, 60, 70 per cent."

Even two decades into the global spread of the internet, the potential for opening up and growth was tremendous, she stressed.

"Sixty per cent of the internet is in English. If that doesn't tell you how uninclusive the internet is, then nothing will," said the tycoon.

The World Economic Forum brings together some 2500 of the top movers and shakers in the worlds of politics, business and finance for a four-day meeting that ends on Saturday.

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Speculators Looking for Havens from Slowing Growth are Piling Into Silver

Speculators Looking for Havens from Slowing Growth are Piling Into Silver

Silver headed for a bull market in its best start to a year in more than three decades, supported by speculation that slowing global economic growth will spur demand for havens.

Holdings in exchange-traded products backed by the metal have posted three straight weekly gains, while U.S government data show money managers raised their net-bullish wagers to the highest since August. An ounce of gold bought 71.4 ounces of silver on Thursday, compared with an average of about 58 over the past decade, signaling the white metal is inexpensive relative to gold.

Investors are returning to precious metals amid concern that U.S. growth won’t be enough to offset weakness in other countries. A collapse in oil prices has boosted the appeal of gold amid the threat of economy-damaging deflation, and prices this week topped $1,300 an ounce for the first time since August. Policy makers at a European Central Bank meeting Jan. 22 are expected to announce new stimulus measures.

“The drumbeat of stimulus across the globe is bringing people to silver and gold,” Dan Denbow, a portfolio manager at the $1.1 billion USAA Precious Metals & Minerals Fund in San Antonio, said in a telephone interview. “Also, the ratio between gold and silver got very, very inexpensive, indicating that silver had some catching up to do.”

January Rally

Silver for immediate delivery climbed 0.7 percent to close at $18.127 on Jan. 21, according to Bloomberg generic pricing. A settlement at $18.4064 would leave the metal up 20 percent from the recent closing low of $15.3387 in November, meeting the common definition of a bull market. Prices are up 15 percent this month, the best start to a year since 1983. It traded at $18.0197 at 2:24 p.m. in Singapore on Thursday.

Gold for immediate delivery fell 0.4 percent to $1,287.43 an ounce on Thursday, after advancing a day earlier to $1,305.25, the highest price since Aug. 15.

“Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks,” Caroline Bain, a commodities economist at Capital Economics Ltd. in London, said in a telephone interview. “Also, the stimulus measures will at some point boost usage of the metal.” Bain said she expects silver to rise to $20 by the end of the year.

Consumption is forecast to grow to almost 680 million ounces by 2018, up 142 million ounces from 2013, as demand in industries ranging from appliances to solar energy will rise, CRU Consulting said in a report on December 10, 2014

Physical Market

A tighter physical market will provide some support to prices this year, Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd., said at a conference in London on Jan. 21.

The consulting firm expects global silver supply from mine production and scrapping to fall 2 percent in 2015, and physical demand for uses including industry, photography and jewelry to grow 2 percent. The physical silver-market surplus will shrink by 40 million ounces to 211 million ounces in 2015, according to Precious Metals Insights.

“Silver is rising along with gold as a hedge against uncertainties,” George Gero, a New York-based precious-metal strategist at RBC Capital Markets LLC, said in a telephone interview. “Also, some funds are betting on future growth with so much money being pumped into the system.”

Speculators Looking for Havens from Slowing Growth are Piling Into Silver

Speculators Looking for Havens from Slowing Growth are Piling Into Silver

Silver headed for a bull market in its best start to a year in more than three decades, supported by speculation that slowing global economic growth will spur demand for havens.

Holdings in exchange-traded products backed by the metal have posted three straight weekly gains, while U.S government data show money managers raised their net-bullish wagers to the highest since August. An ounce of gold bought 71.4 ounces of silver on Thursday, compared with an average of about 58 over the past decade, signaling the white metal is inexpensive relative to gold.

Investors are returning to precious metals amid concern that U.S. growth won’t be enough to offset weakness in other countries. A collapse in oil prices has boosted the appeal of gold amid the threat of economy-damaging deflation, and prices this week topped $1,300 an ounce for the first time since August. Policy makers at a European Central Bank meeting Jan. 22 are expected to announce new stimulus measures.

“The drumbeat of stimulus across the globe is bringing people to silver and gold,” Dan Denbow, a portfolio manager at the $1.1 billion USAA Precious Metals & Minerals Fund in San Antonio, said in a telephone interview. “Also, the ratio between gold and silver got very, very inexpensive, indicating that silver had some catching up to do.”

January Rally

Silver for immediate delivery climbed 0.7 percent to close at $18.127 on Jan. 21, according to Bloomberg generic pricing. A settlement at $18.4064 would leave the metal up 20 percent from the recent closing low of $15.3387 in November, meeting the common definition of a bull market. Prices are up 15 percent this month, the best start to a year since 1983. It traded at $18.0197 at 2:24 p.m. in Singapore on Thursday.

Gold for immediate delivery fell 0.4 percent to $1,287.43 an ounce on Thursday, after advancing a day earlier to $1,305.25, the highest price since Aug. 15.

“Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks,” Caroline Bain, a commodities economist at Capital Economics Ltd. in London, said in a telephone interview. “Also, the stimulus measures will at some point boost usage of the metal.” Bain said she expects silver to rise to $20 by the end of the year.

Consumption is forecast to grow to almost 680 million ounces by 2018, up 142 million ounces from 2013, as demand in industries ranging from appliances to solar energy will rise, CRU Consulting said in a report on December 10, 2014

Physical Market

A tighter physical market will provide some support to prices this year, Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd., said at a conference in London on Jan. 21.

The consulting firm expects global silver supply from mine production and scrapping to fall 2 percent in 2015, and physical demand for uses including industry, photography and jewelry to grow 2 percent. The physical silver-market surplus will shrink by 40 million ounces to 211 million ounces in 2015, according to Precious Metals Insights.

“Silver is rising along with gold as a hedge against uncertainties,” George Gero, a New York-based precious-metal strategist at RBC Capital Markets LLC, said in a telephone interview. “Also, some funds are betting on future growth with so much money being pumped into the system.”

BHP Ramps Up Iron Ore, Petroleum Production Despite Price Slumps

BHP Ramps Up Iron Ore, Petroleum Production Despite Price Slumps

BHP Billiton says it has raised group production by 9 per cent in the December half year, despite slumping prices for its key commodities.

For the 2014 December quarter BHP Billiton lifted iron ore output by 16 per cent compared with the same period a year earlier to 56.4 million tonnes.

That compares with a 12 per cent rise in Rio Tinto's output over the same period, announced yesterday, although Rio remains the bigger producer.

Both companies have lifted output over the past year despite a dramatic slump in benchmark iron ore spot prices in China from around $US135 a tonne in early 2014 to less than $US70 a tonne at the end of last year.

The benchmark Tianjin spot price was at $US67.40 yesterday.

BHP Billiton says cost cuts, some of which are related to the scale associated with extra capacity, are offsetting some of the price declines.

"We are reducing costs and improving both operating and capital productivity across the group faster than originally planned," said the company's chief executive Andrew Mackenzie.

"These improvements will help mitigate some of the impact of lower commodity prices and we remain alert to opportunities to further increase free cash flow."

While iron ore prices have fallen fast, crude oil prices have fallen faster still.

Despite this, BHP Billiton's December quarter petroleum production was 10 per cent higher than the same period a year earlier, although it was 6 per cent down on the September quarter of 2014.

Mr Mackenzie said that BHP Billiton is already cutting back its planned US petroleum investments in response to oil prices which have more than halved from their 2014 peaks.

"We have moved quickly in response to lower prices and will reduce the number of rigs we operate in our onshore US business by approximately 40 per cent by the end of this financial year," he noted in the report.

"Our ongoing shale investment program will remain focused on our liquids-rich Black Hawk acreage. However, we will keep this activity under review and make further changes if we believe defer ring development will create more value than near-term production."

Elsewhere in its portfolio of mines, BHP revealed that metallurgical coal production was up 17 per cent compared to the December quarter a year before.

Energy coal used in power stations saw a 5 per cent rise in output.

Copper production fell 4 per cent in the December quarter compared with a year earlier, alumina was 3 per cent higher, aluminium 15 per cent down and nickel 10 per cent lower.

Despite weak prospects for any price recovery in the short term, BHP Billiton said it is on track to increase petroleum and copper output by 5 per cent this financial year, iron ore by 11 per cent and steel making metallurgical coal by 4 per cent.

Swiss Central Bank Defends Franc Move Despite Turbulence

Switzerland’s central bank on Saturday stood by its shock decision to let the franc soar, insisting the subsequent turbulence rocking global markets and the Swiss economy since the move would eventually subside.

“This was not an easy decision... (but) we are convinced it is the right one,” Swiss central bank chief Thomas Jordan said in an interview published in Swiss dailies Le Temps and NZZ on Saturday.

The Swiss National Bank (SNB), he said, had determined that by continuing to artificially hold down the franc, “it risked losing control of its monetary policy in the long term.” Jordan’s comments came after the bank stunned markets Thursday with its decision to abandon the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.

This Swiss currency has since gained around 20 per cent against other currencies and is currently trading at around parity with the euro.

The soaring franc caused panic on global markets, bankrupted foreign exchange traders as far away as New Zealand and was seen as a significant threat to Switzerland’s export-dependent economy.

The Swiss stock exchange’s main SMI index has plunged more than 14pc since Thursday’s announcement.

Swiss banking giant UBS said the SNB’s decision would deliver a severe blow to economic growth, slashing its forecast to just 0.5pc expansion this year from its previous estimate of 1.8pc.

The yield on Swiss 10-year bonds on Friday meanwhile entered negative territory for the first time, slipping to -0.031pc, meaning lenders will now have to pay to lend money to the country.

THREATENING ENTIRE SWISS SYSTEM: “The strong franc is threatening the entire Swiss system,” the Tribune de Geneve (TdG) daily lamented on Saturday, adding: “The future looks dark.”

Jordan said Switzerland’s central bankers, who unanimously agreed to scrap their long-drawn efforts to hold down the value of the franc, “were aware that this decision could have a major impact on markets.”

“The markets should gradually stabilise,” he said, admitting though that “it could take time.”

The SNB had been defending the exchange rate floor since September 2011 in an effort to protect the country’s vital export and tourism industries, even buying massive quantities of foreign currencies to do so.

The rate was introduced as the eurozone crisis sent investors scurrying to the safe haven currency. More recently, the Russian rouble crisis put renewed pressure on the franc.

Jordan insisted the efforts to rein in the franc were no longer justified, insisting the Swiss economy was in a much better place than it had been when the cap was introduced.

“We gave the Swiss economy time to adapt to the new situation. A period of three years is not negligible,” he said, stressing that “the currency cap from the beginning was supposed to be an exceptional and temporary measure.”

“It was always meant to be abandoned.”

SNB NOT ALL-POWERFUL: Now that the cap was gone, Jordan acknowledged that “following this decision, the economic situation in Switzerland is more difficult.”

But, he pointed out, “SNB cannot fulfil all wishes with its monetary policy. It is not all-powerful.”

His comments were unlikely to win over Swiss businesses bracing to see exports plunge and shoppers at home flood across to neighbouring eurozone countries for cheaper goods.

“Making products in Switzerland and selling them abroad is currently the worst possible scenario,” Syz analyst Jerome Schupp told TDG.

Silver Investment News: Short Term Silver bottom?

Has Silver hit a Short Term bottom? 

Gold and silver mining stocks will likely bottom before the price of the underlying metal. Are mining shares telling us that a bottom is near?

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