Energy / Resources
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Steel production confirms slowing industrial output
David Buckland
September 26, 2012
Data released yesterday from “worldsteel” on global iron and steel production confirmed slowing output. Global steel production for August 2012 was down 1% year on year. Steel production from the European Union for August was down 15% year on year, taking annual output to 144 million tonnes, or 9.6% of the 1.5 billion tonnes per annum of global production. Chinese steel production has slipped in recent months from an annualised 750 million tonnes to 700 million tonnes, or 47% of global production.
For 2013, Australia’s Bureau of Resources and Energy have recently cut their iron-ore forecast to US$101/ tonne, while many brokers are still assuming a price of at least US130/tonne. We continue to watch the steel numbers closely.by David Buckland Posted in Energy / Resources, Insightful Insights, Manufacturing.
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It’s a Bear Trap! Be fearful when others are greedy
Roger Montgomery
September 17, 2012
Its no news we have been warning investors about the risk of declining iron ore prices since late calendar 2011. Most recently we have been warning of a bear trap – the risk associated with buying stocks when they appear to be ‘cheap’ because they have fallen a long way but poor fundamentals are likely to see prices even lower.
Figure 1 outlines how The Montgomery Funds have been thinking about China, Iron Ore and our big miners.
by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Market Valuation.
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MEDIA
Thinking Of A Gamble? Don’t.
Roger Montgomery
September 15, 2012
Roger Montgomery discusses why investing in heavily leveraged companies is a risky pursuit in this Australian article published 15 September 2012. Read here.
by Roger Montgomery Posted in Energy / Resources, In the Press, Insightful Insights.
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The pebble drops
Roger Montgomery
September 13, 2012
There is an old chinese proverb that says “a pebble cast into a pond causes ripples that spread in all directions” – as Michael’s email over the weekend (below) displays, there’s a shift going on which is rippling its way through the market.by Roger Montgomery Posted in Energy / Resources, Insightful Insights.
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MEDIA
A rocky future for iron ore?
Roger Montgomery
September 10, 2012
Roger Montgomery discusses how the dramatic volatility in the price of iron ore is likely to continue in this discussion on ABC1’s Inside Business broadcast 2 September 2012. Watch here.
by Roger Montgomery Posted in Energy / Resources, TV Appearances.
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From the Coal Face – pardon the pun
Roger Montgomery
September 8, 2012
We have just written our monthly report to investors of The Montgomery Private Fund and the outlook for the large Materials stocks is not expected, in our view, to improve in the short term. Chinese steel mills don’t see demand picking up. Daily steel production falling 5% every two weeks. While blast furnaces are slowing down, capacity is high and shut downs not happening. We have noted already that inventory remains double that of 2007.
WHat does this mean? Prices can, and we expect will, continue to go down. Not is straight line of course but the outlook appears to be deteriorating even further for the widely held Materials stocks.
In China, steel prices are already hitting 2008 lows.Observers say Iron ore inventory levels at ports is still quite high
Our reading on Steel demand and after breaky with a member of the team at one of the the worlds largest short selling fund is that steel demand will continue to be weak into 2013. I think expectations for a recovery in the short term simply represent wishful thinking by those in denial.
by Roger Montgomery Posted in Energy / Resources, Insightful Insights.
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Mining swings from profit to loss quickly and without fear or favour. Its always been this way.
Roger Montgomery
September 6, 2012
You might recall back in December (Dec 8, 2011) with FMG trading at $4.84 (now $2.94), BHP at $37.00 ($31.36 today) and RIO at $66.09 ($50.19 today) we warned
“I now wonder whether we are seeing the bubble slip over the precipice? Falling property prices (10 per cent of the Chinese economy) leads to lower construction activity, leads to declining demand for Australian commodities, leads to falling commodity prices, leads to big drops in margins for a sizeable portion of the [Australian stock] market index…”
Since the start of 2012, commodities have, on average, fallen more than 20%, and in some cases much more. This is a pace of decline matched only by that experienced during the financial crisis of 2008.
At current prices many mining companies will now be making losses. As analysts we question the viability of some companies and Atlas Iron for example, one of the largest Iron Ore producers outside of BHP and RIO, may not be without outside help – should prices remain at or below present levels.
by Roger Montgomery Posted in Companies, Energy / Resources, Insightful Insights.
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Ironic or Moronic?
Roger Montgomery
September 4, 2012
Last night the US markets rallied. There was no good news. In fact the reason for the rally was that the US economy was floundering. A floundering economy means more stimulus and stimulus is good because it should eventually lead to a better economy.
In other words an unhealthy patient is about to receive another sugar hit which might make them better. Buy!
Clearly the irony was not lost on traders of Fortescue shares this morning. FMG’s share price rallied several percent on the open in response to FMG’s announcement that it will significantly cut back on capex and production targets. Apparently, investors in a pure play iron ore company are pleased that the company will be less exposed to iron ore. Evidently the company is worth more if it does less. Taken to its extreme, it worth the most if it does nothing.
We believe that over the long term, equity markets work effectively as a weighing machine. In the short term, however, they can sometimes seem a little odd – and thats putting it mildly!
Stay tuned we are cooking something mind boggling about FMG and its peers…
by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Investing Education.
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CEO’s, investors finally working it out. Margin squeeze. Could Atlas need a bailout?
Roger Montgomery
September 3, 2012
On December we explained that just as Gerry Harvey needs to sell more plasma tvs at deflated prices to generate the same profit because of margin squeeze, the same laws of arithmetic would apply to miners of ore and coal.
It’s not difficult to imagine a world where a company like Atlas Iron ore (AGO) will need a bailout!
One of our brokers wrote to us today;
“Big downgrades to our FY13 expectations are coming. On our estimates for FY13 and against market consensus we believe there could be downgrades to NPAT estimates of 31 – 96% for the producers”
It comes from the same analyst that told us to buy mining services businesses in April.
You might recall Vale’s massive June quarter slump. Aussie market investors seem to be in denial or just hoping for iron ore price to bounce. Neither strategy preserves retirement savings.
Stay tuned.
by Roger Montgomery Posted in Energy / Resources, Insightful Insights.
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Agree to disagree on China?
Roger Montgomery
August 31, 2012
Fortescue Chief Nev Power yesterday said he was confident that the iron ore price would rebound to the US$120/tonne level following its recent weakness. We have been scanning the Chinese economy from a number of angles for some time now, and the indications we see are rather less optimistic. Remember, before 2002 the iron ore price averaged between US$15-$20/tonne. Currently US$90/tonne. History suggests that the maintainable price might be significantly below present levels, even after the large declines.
At the opposite end of the market to Fortescue, nano-cap Merchant House makes industrial boots in Tinajin, close to Beijing, and has been making them ever since Deng Xiaoping began the process of economic reform some 30 years ago. For FY2012, Chairperson Loretta Lee reports rising input costs, increasing wages, and new taxes and regulatory burdens. She states: “It is becoming increasingly obvious that China is no longer the world’s low cost factory”. The implications for China’s exports and the flow on into areas such as fixed investment should not be underestimated.
by Roger Montgomery Posted in Energy / Resources, Insightful Insights.
