Morning Report Thursday 21 May 2015
China has backed the Brazilian iron ore giant, Vale by investing in massive ships that will transport the bulk commodity to North Asia. This investment on a state level from Premier Li Keqiang, in up to eight “Valemax” ships, plus loan of $US4bn to help fund an expansion, is a clear vote for the South American miner. Vale is looking to increase capacity by over 35% by 2018, putting added pressure on the iron ore price – see chart 1.
• The net result is Vale will become a cheaper producer than Fortescue (FMG) and close the gap on the cheapest RIO, and second BHP.
The combination of the Chinese buying Iron Ore at lower prices from the Brazilians over the coming years is clearly bad news for both our significant iron ore sector and country’s balance of payments. For the local looking in it really feels like some people have dropped the ball badly – why did the Brazilians get ahead of us? When we consider that Sydney is 8,942 km from Beijing and Rio is 17,000km this is a contest that should have been ours for the taking!
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