The first recognisable Iron Ore producer on your list is RIO which is up 3%.
IMO, the Chinese Government is manipulating the price of Iron Ore by controlling
the spot price particularly leading up to the end of each quarter. ( hence the price
lift of IO since the 1st July). It is also interesting that up to last week the Chinese
Government was down-ramping its economy but last week's announcement of GDP
indicated a lift from 7.4% to 7.5% growth with more stimuli coming.(surprised?)
For our major Iron Ore producers like RIO, BHP & FMG the key price is the forward
3 month contract price and not the Spot Price which varies.
To understand the impact of the spot price on these majors one has to understand
what each of the contract pricing formulas are and what % of production if any is
sold on the spot market. Operations reports contain the average selling price
albeit 3 months in arrears and while some like BHP specify the impact of IO
price that they recieve on their revenue, they do not express this in the movement
of the spot price.
Due to the spot market volumes being quite small vis-a-vis the contract volumes, it is easy for
China's Communist Regime to orchestrate stockpiling from contract supplies and then put
downward price pressure on spot prices at key times and on which forward contract prices are based.
Unfortunately, for the retail investors , these contract formulae are 'commercial in confidence"
and one can only infer what forward contract prices are based on the relationship between
last quarter's average price achieved and last quarter's average spot price. It is interesting
to compare FOB prices go the big 3 on a trailing basis.
For Australia there are two solutions:
(a) a national IO marketing board to counter China's monopoly buying cartel.
(b) Australian and Barzilian producers to form an OPEC-like organisation to
control volumes and, consequently, price.
It is quite ironic that China has imported 16% more Io YTD that it has managed to
push the price down from last year. But I suppose there is no point complaining if
we can't get our act together , China is always going to stick it up us because of our
belief in competition moderating the excesses of Capitalism and as such we are
shoting ourselves in the foot.
Our Trade Minister can gain a lot more for Australia economically by addressing
China's Communist Regime's price manipulation of the prices of our 2 most
important exports: Iron Ore & Coal, rather than tripping around the world perusing
insignificant issues for the sake of good press.
