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China Economic Slowing Not Hitting Iron-Ore Steel Index

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04/13/2012 | 12:21am CEST

(Updates with recent price data on iron ore; European impact, HSBC analyst's comments, Chinese steel statistics.)

By Diana Kinch

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The slight slowdown expected in China's first-quarter economic-growth rate isn't hitting the iron-ore market, where prices continue to edge up and analysts remain bullish, said Steve Randall, managing director of London price provider The Steel Index.

After a big fall in October following China's introduction of measures to cool the property market, iron-ore has traded in a very tight band so far this year and prices edged up in March and into April. Thursday, the price was $148.80 a metric ton for iron-ore fines of 62% Fe content delivered into China, the highest so far this year, Randall said in an interview.

"There's no evidence of the world falling apart in iron ore and it's the same story for steel," Randall said. "There's no great fireworks going on."

He added, "It's ultimately supply and demand that rule the market. They possibly need 5% to 10% more iron ore this year in China and that's a big number."

Randall noted while China's overall iron-ore demand growth this year looks set to be lower than the 12% increase registered in some recent years, China's need for imported iron ore will continue to rise due to the decreasing quality of the country's own iron-ore reserves, which have an average iron content of around 20%, compared to 58% to 63% for Australian ore and 64% to 66% in Brazil.

China is due to announce its first-quarter gross domestic product figures Friday. Analysts are expecting a slowdown from 2011's annual growth rate of 9.2%.

Iron-ore spot prices hit a recent low point of $116.90 in late October after plunging from $181 in early September, remaining depressed in early 2012 on high inventories at Chinese ports, the impact of the Chinese New Year holiday and concerns over the European sovereign debt issues, Randall said.

Jonathan Brandt, a New York analyst with HSBC Global Research, said late Wednesday he didn't consider that the Chinese slowdown is affecting mining companies and that any slowdown "is not fully priced into the mining companies' shares."

"There's a disconnect between the economic statistics and what commodity prices are telling us," Brandt said in an interview. Chinese statistics on the country's crude steel production, showing a fall in output in January and February from the year-ago period were possibly misleading, as latest government figures show annualized production now running at record highs of 680 million tons a year, according to HSBC.

-By Diana Kinch, Dow Jones Newswires; 55 21 2586 6086; diana.kinch@dowjones.com

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Financials ($)
Sales 2017 32 723 M
EBIT 2017 6 046 M
Net income 2017 3 293 M
Debt 2017 22 201 M
Yield 2017 2,07%
P/E ratio 2017 27,42
P/E ratio 2018 18,12
EV / Sales 2017 3,14x
EV / Sales 2018 2,77x
Capitalization 80 647 M
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Number of Analysts 19
Average target price 17,1 $
Spread / Average Target 6,5%
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Andrew Mackenzie CEO & Non-Independent Executive Director
Jacques A. Nasser Chairman
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Wayne William Murdy Independent Non-Executive Director
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