Bulk Commodities Update – June 2013

Bulk commodity prices remain under pressure from mounting concerns over the China growth outlook. Nevertheless, iron ore is receiving some support from tentative restocking activity, while a margin squeeze in the coal market could suggest that prices are approaching their bottom.

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  • Bulk commodity prices remain under pressure from mounting concerns over the China growth outlook. Nevertheless, iron ore is receiving some support from tentative restocking activity, while a margin squeeze in the coal market could suggest that prices are approaching their bottom.
  • Global steel production has eased over recent months in line with slowing steel production in China and overall sluggish industrial activity around the globe. Nevertheless, Chinese steel production has continued to grow in trend terms – albeit at a slowing pace – as mills attempt to maintain market share despite a slowing economy and elevated inventories.
  • The average price for iron ore (62%) is estimated to have been around US$102 per tonne FOB for June, down from US$117 in May. Spot prices are currently around US$116 per tonne (CFR,Tianjin), having ranged between US$111-121 per tonne during June.
  • Spot prices for coal shipped from Newcastle dipped below US$80 per tonne (FOB) in late June, the first time since November of last year. Prices averaged around US$85 per tonne (FoB) in June, down more than 5% from the previous month.
  • We have revised our price forecasts for bulk commodities slightly lower to reflect our expectations for slower global growth – particularly in China. Marginal production costs are expected to provide support to commodity prices, but there are a number of factors contributing to the potential downside to prices. Subdued demand conditions are expected to remain in place for longer, while cost cutting and USD appreciation will add to price headwinds. Rising global supplies are also set to rise significantly, although these have been long expected.

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