Credit Suisse Reviews Iron Ore Market Dynamics, Reports Uptick In Chinese Steel Mills Making Losses

In its Global Mining Weekly publication released Monday, Credit Suisse noted there has been a further downgrade of iron ore production. This, according to the firm, continues a trend seen throughout 2016, with its supply tracker showing output from majors rising below 2 percent year-over-year through the second and the third quarters.

Production Cuts

The firm noted that Vale SA (ADR) VALE reduced its 2017 iron ore guidance by 20 metric tons to 360–380 metric tons and Rio Tinto plc (ADR) RIO lowered its 2017 shipments guidance by up to 5 million tons. Iron ore prices were up 3 percent, the firm said.

Additionally, Credit Suisse highlighted easing of pellet premia and higher coal prices. The firm noted a roughly 2 percent increase in global steel output and sees further room for apparent demand to push higher in the fourth quarter and the first half of 2017. Consequently, the firm sees further support for iron ore prices.

The firm sees a 9.4 percent apparent demand lift in September, given that apparent demand has undershot real demand through 2015 and in the year-to-date period.

Related Link: Unexpected Countries Could Rise As Latin America's New Mining Champions

3Q Production Of Miners Reviewed

Recapping the third-quarter production reported by major producers last week, Credit Suisse said Vale, in addition to lowering iron ore guidance, reported underwhelming results for other commodities, especially Copper and Nickel. Rio, according to the firm, was generally in line, although it lowered its calendar year 2016 iron one shipments guidance, citing port and rail maintenance.

BHP Billiton Limited (ADR) BHP reported better-than-expected iron ore output and maintained its guidance, the firm noted. However, BHP Billiton disappointed on thermal, copper and oil. Commenting on Fortescue Metals Group Limited FMG FSUMF performance, Credit Suisse said it had a solid start to the fiscal year 2017.

Bleeding Chinese Steel Mills

Credit Suisse also noted that the percentage of surveyed Chinese steel mills reporting losses has risen in recent months. The mills are hit by waning domestic and global demand, which has also exerted downward pressure on prices.

The firm also highlighted some data points on the hot and happening Chinese economy that has an impact on the prospects of the mining industry due to it being a huge producer as well as consumer. In the recently concluded third quarter, the Chinese economy expanded 6.7 percent year-over-year in the third quarter, in line with expectations, and floor space sold in China surged up 30 percent in September despite new starts rising by a far lower 3 percent.

At the time of writing, Vale was up 3.91 percent at $6.51 and Rio Tinto was gaining 0.15 percent to $32.92, while BHP Billiton was down 0.11 percent at $34.90 and Fortescue was down 0.20 percent at $5.11.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!