Producers of copper, iron ore, steel and aluminum are trading higher following pledges from China's top steelmaking province to further cut production capacity.
Shanghai steel futures jumped 7% overnight to their highest in nearly three weeks, with iron ore and coking coal climbing ~8%, on reports that Hebei province, which accounts for 25% of China's total steel output, plans to more than double this year's cut to 31.86M metric tons of steel and ironmaking capacity this year.
Also, London copper rose 3% to $5,755/metric tons, extending YTD gains to nearly 5%, on news that China’s producer prices had surged in December.
Vale (NYSE:VALE) says it signed an agreement with BHP Billiton (NYSE:BHP) to allow the use of its Timbopeba pit to deposit tailings from the jointly owned Samarco venture when operations are restarted.
The deal, which is pending commercial negotiations and government approvals, is the latest step for Samarco to resume operations suspended last year after the collapse of a tailings dam caused Brazil's worst-ever environmental disaster.
In compensation for the transfer of the pit, Vale says Samarco will supply it with non-processed ore.
Vale (VALE +2.6%) and Mosaic (MOS +0.5%) recoup a bit of yesterday's losses following the Brazilian company's $2.5B sale of its fertilizer business that also makes it MOS's biggest shareholder.
The price paid and the leverage involved "could prove too high/risky, though we understand the 'once-in-a-lifetime opportunity' to acquire large assets in the fastest growing agriculture/fertilizer market," says Michael Underhill, chief investment officer of Capital Innovations, a MOS shareholder.
Analysts at Banco BTG Pactual estimate MOS is paying 8.6x the fertilizer division's EBITDA, calling it an attractive multiple.
MOS says it expects the deal to add to EPS by 2018, and the Brazilian unit will become the company's largest by trading volume, surpassing North America, although the North Americas unit will still lead in production.
Vale (VALE -4.7%) this weekend opened the S11D iron ore mine in Brazil - its biggest project ever, adding 75M metric tons of production when it reaches peak output in four years and firmly lifting Vale over Rio Tinto as the world's top iron ore producer.
Vale invested $14.3B in the mine and processing facilities, along with the expansion of a rail line that will carry ore ~620 miles to a new port terminal for loading onto the world's largest iron ore ships.
S11D will offer some of the best quality ore and lowest costs in the industry, able to produce 90M metric tons/year at full capacity a cost of ~$7/ton, or 41% less than Vale’s current average expense; the mine has a life expectancy of 30 years.
A planned alliance between iron ore producers Vale (NYSE:VALE) and Fortescue Metals (OTCQX:FSUMF) may unravel, Fortescue CEO Nev Power says.
Fortescue and Vale had wanted to create an ore blend for sale in China, which was expected to boost profits and help develop new projects, but the CEO says talks between the companies have yet to bear fruit because low shipping rates have leveled the playing field between exporters in Brazil and Australia, the world's two top iron ore production hubs.
But Power says a failure to develop a new blend of the companies' ores will not stop Fortescue, which also announces that it will pay off another $1B in debt amassed when building its Australian mines.
The mine will have a capacity of 90M metric tons and reasserts Vale's position as the world's top iron ore producer after years of stagnation; it is expected to start operations by year-end, with the first shipment set for January 2017.
The license is "an important milestone in consolidating Vale's position as the producer with the lowest C1 cash cost in the industry," the company says.
Iron ore prices fell today by the most since March, extending a retreat from a two-year high, as China’s exchanges lowered the daily trading limit and raised margin requirements in a bid to clamp down on speculation.
Ore with 62% content delivered to Qingdao fell 6.8% to $72.08/ton after hitting $80.83 on Monday, the highest since October 2014 and culminating a 65% YTD surge.
Despite the steps to tighten trading rules, "the basics that are driving that speculation - the search for higher yielding assets and the desire to hold U.S. dollars at a time for a weaker yuan - have not changed,” says Westpac Banking economist Justin Smirk. “As such, we would expect to see significant volatility for some time.
Ferreira and other company execs expect the announcement soon of several, unnamed asset divestitures that could help Vale trim net debt to $15B-$17B next year.
"The key message is that we are in a much more comfortable position to be very thoughtful about... divestitures," CFO Luciano Siani says.
Cost-cutting efforts are helping to ease Vale's capital spending needs for the years ahead, as the company says it is lowering its budget for planned investments to $4.5B next year and $2.9B in 2021 from an expected $5.6B this year.
For next year, Vale expects to produce 360M-380M metric tons of iron ore, with a target of 400M-450M metric tons in 2021.
Rio is seeking up to $1/ton more than the index price for Pilbara's PB fines from Chinese mills on long-term contracts for 2017, in a break from a years-long trend of pricing at spot values, according to the report; Rio previously was selling the ore at a premium only to traders.
Rio reportedly also has pushed up the premium it seeks from traders to $2-$2.50/ton over the index price for PB fines for January to April, which would be a record high and up from a premium of $1.50 for the four-month period through this December.
"The steel market is so hot this year and they think it's something that buyers can accept," a source tells Reuters. "If Rio gets it, other miners may follow."