For shareholders in companies like BHP, Rio Tinto, Fortescue Metals, Woodside, Oil Search, Whitehaven Coal, Santos and Origin Energy, the China boomlet continues to give generously.
Despite the weakening in markets and the Chinese economy the iron ore boomlet continues while prices for hard coking coal remain solid and LNG prices show little signs of weakening.
Leading the way is iron ore – last week we noted the boomlet was gathering pace, late in the week it accelerated with the price of 62% fines delivered to China rising 4.4% to more than $US76 a tonne on Friday.
That saw the price rise since the Golden Week holiday over the end of September/early October to more than 10% – from $US69.24 a tonne to $US76.48 on Friday. The rise also means the standard iron ore price has jumped more than 21% from the early July lows.
In contrast, copper prices are down around 20% from the four and a half year highs in early June.
The price is now at its highest since early March (and the price of 58% fines delivered by companies like Fortescue Metals) has also risen sharply in the past week to be around $US67.81 on Friday – where the 62% fines price was in late September.
With the 2018-19 budget based on an iron ore price of $US55 a tonne (fob – that is without freight and insurance), the bounce in prices could deliver more than $A5 billion to government coffers if sustained into 2019.
At the same time, the price of high grade (hard) coking coal remains above $US200 a tonne instead of collapsing to around $US120 a tonne by the end of the current quarter, as forecast in the budget papers.
China’s crude steel production reached 80.85 million tonnes last month, up from August’s 80.33 million tonnes and from 71.83 million tonnes in September last year.
In fact output for the first nine months of the year climbed 6.1% to a record 699.42 million tonnes. That puts it on track to top 2017’s 831.7 million tonnes, which was up 5.7% from 2016.
Chinese imports of iron ore increased 4% to 93.47 million tonnes last month from 89.35 million tonnes in August, but were still sharply lower than the record 102.83 million tonnes a year ago, according to China’s General Administration of Customs.
For the first nine months this year, China bought a total of 803.34 million tonnes of iron ore, down 1.6% on the same period of 2017.
Notice that with a 1% drop in iron ore imports, China produced 6.1% more steel in the first 9 months of this year because it is chasing high-quality iron ore of the type that Australian (and Brazil) produces and paying higher prices than forecast).
In other words, Chinese producers are getting 6% more crude steel out of a slightly smaller amount of iron ore – great for lowering pollution, boosting productivity and profits.
Also remember that the current low value of the Aussie dollar (under 70 US cents) will mean better returns in terms of $A denominated dividends next year, while nationally the lower currency means more export income in $A (and that applies to exports of coal and LNG).
