Bulk Commodities Update – July 2014

• Economic trends in China –the key consumer for bulk commodities –are mixed, with stabilising trends in the industrial sector (having slowed across Q1) in contrast to a slowing trend in the real estate sector (a major consumer of steel).

• Global steel production has continued to increase –with growth driven by China (despite efforts from authorities to control the sector). In the first half of the year, China accounted for just over half of global production.

• Profitability in China’s steel sector has improved in recent months, however this has been due to input costs falling more rapidly than steel prices (which remain weak when compared with recent history).

• Iron ore prices have struggled for direction in July, having trended away from recent lows in mid June. China’s imports have remained strong, however stockpiles at ports rose to record levels in recent times. We expect prices to settle at around US$100 at the end of 2014 and down toUS$95 a tonne at the end of 2015.

• Stable but limited price data across the past month likely indicates limited physical trade in the metallurgical coal spot market recently. Reflecting the weak profitability in the sector, we expect prices to recover from the current lows –albeit only relatively modestly –trending up to US$150 a tonne (for hard coking coal) by the end of 2015.

• Thermal coal prices have continued to drift lower, however we expect limited further downside to prices, due to poor profitability in the sector. The increasing level of idle production capacity should limit any significant upside potential. We forecast contract prices to ease to US$80 a tonne in the next Japanese financial year (unchanged from our previous outlook).

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• Bulk Commodities Update – July 2014 (PDF, 271KB)