Archive for the ‘PRODUCTION’ Category

Weak ore prices, high costs cause Labrador Iron Mines to cease operations

Friday, July 4th, 2014

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Falling global iron ore prices and the need to cut costs have forced Labrador Iron Mines Holdings Ltd. (TSX:LIM) to halt operations at its mines for the year.

Reporting its results for the fiscal year ended March 31, the company said 2014 will have to be a “development year,” with major efforts focus on its flagship Houston Mine, located near Schefferville in the western central part of the iron-rich Labrador Trough, one of the most prolific iron ore producing regions in the world.

The project, expected to start production in April 2015, is still subject to completion of financing and the negotiation of major contracts.

Desjardins Securities analyst Jackie Przybylowski said in a research note that the firm could start work on the Houston Mine this summer but it would have to raise $20-million to do so.

“We see a low probability that the company will raise the required funds in the next few years,” Przybylowski wrote.

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Labrador Iron said it is also looking to lower costs by renegotiating with major contractors and suppliers, and has already put in place savings initiatives in various areas including mining equipment rates, rail car leasing rates and corporate and administration costs.

Savings initiatives have already been put in place in several areas, including mining equipment rates, fuel procurement, aviation services, hydroelectric power, rail car leasing rates and corporate and administrative costs.

Even directors’ fees have been waived.

Hard sell

Iron ore mining in the Labrador Trough region of Canada has been a hard sell recently, but the Quebec government’s commitment of up to $19.2 million ($Cdn 20 million) for a feasibility study on a new rail link that would connect mines in the area to ports, may be about to change that.

While the 1000-kilometre-long area —home to one of the world’s largest high-quality iron-ore deposits— seems attractive to miners, investors are understandably wary of the region right now.

While the 1000-kilometre-long area —home to one of the world’s largest high-quality iron-ore deposits— seems attractive to miners, investors are understandably wary of the region right now.

There still are uncertainties in the market, such as current prices sinking close to two-year lows and the fact some miners have been either shelving projects in the region or having difficulties selling them.

Cliffs Natural Resources (NYSE:CLF) said mid-February that it was postponing an expansion of its Bloom Lake mine in the region, while Rio Tinto (LON:RIO) failed to find a buyer for its 59% stake in Iron Ore Company of Canada, or IOC.

Shares in Labrador Iron Mines were down almost 10% to 0.0950 at 12:05 pm ET.

Henry Sapiecha


Tuesday, May 1st, 2012

Oil seed $$$ hike ignites food price fear

If rising oil prices were not enough, investors now have to contend with a bigger risk: a repeat of the 2007-08 spike in food prices.

Prices of commodities ranging from soyabeans and corn to rapeseed and feeder cattle are soaring as bad weather and strong demand in China combine to tighten supplies and trigger food inflation fears.

The rise in prices of these crops could be sustained, warn industry experts. The market is “not going to see food inflation abating in the next 18 months, to two years,” says Richard Feltes, vice-president at broker RJ O’Brien in Chicago.

Yet the surge is unlikely to mirror that of the 2007-08 spike. The cost of wheat and rice, the two most important agricultural commodities for global food security because of their status as a staple for billions of people in southern Asia and sub-Saharan Africa, remains stable thanks in large part to bumper crops over the past few years.

The cost of sugar, an important source of calories in India and other emerging countries, is also down from previous highs.

Instead, the main concern centres on the price of oilseeds, such as soyabeans, rapeseed and canola, and corn.

Oilseeds are not only a source of edible oil for coking and processed food but also the main source of protein-rich feed meal used to fatten cows, sheep, pigs and poultry. Corn is also a crucial source of feed meal. The rise in feed is already pushing up meat costs worldwide, analysts say.

Soyabean prices have risen more than 20 per cent since the start of the year and hit a peak of $15.09 a bushel on Friday, the highest in four years. Commodities traders say they are likely to rise to $16-$17 a bushel, targeting the all-time high of $16.63 set in the summer of 2008. “I am very bullish,” says a senior executive with a leading commodities trading house.

Canola prices hit C$665.90 a tonne last week, their highest since July 2008 and only a fraction below the all-time high set during the 2007-08 food crisis. And rapeseed prices in Europe, at €514 per tonne, are less than 2 per cent below the 2008 peak.

Soya production is sharply down in the Latin American agricultural belt of Brazil, Argentina, Uruguay and Paraguay after the La Niña weather phenomenon exposed fields to hot, dry weather, hurting yields. The output drop in the region, which accounts for more than half the world’s exports of the commodity, comes as Chinese imports have increased more than 20 per cent in the first quarter.

Chris Gadd, analyst at Macquarie, says Chinese buyers could afford high dollar-denominated prices thanks to a fall in freight rates and a stronger renminbi.

Moreover, Chinese soya production has dropped as farmers have opted to sow more acres with corn, which is fetching record prices in China.

Commodities traders are more restrained about the outlook for corn prices, but they warn that costs are likely to remain at historically high levels in spite of an expected surge in US production due to unusually high Chinese demand.

Beijing has only been an occasional importer of corn over the past 50 years, with significant overseas purchases over three short periods: 1973-75, 1978-83 and 1994-96. Those sporadic imports have become more common and traders expect China in the 2011-12 and 2012-13 crop season to make its biggest purchases of corn over a two-year period since records began in the 1960s.

Abdolreza Abbassian, senior grains economist at the UN’s Food and Agriculture Organisation in Rome, anticipates Beijing will buy between 8m and 10m tonnes over the two seasons.

In China, the cost of corn hit an all-time high in March of Rmb2,497 per tonne, up roughly 10 per cent from the beginning of the year, after Beijing said that its inventories were lower than thought. Since then, agricultural traders say Sinograin, the state-owned trading house which manages the state grain reserves, has been in the market buying corn to replenish its strategic stockpile.

Corn prices rose on Monday to $6.58¾ a bushel yesterday after the US government last week said traders had concluded their biggest single-day corn deals since 1991. The market is assuming that the corn is heading to China. During the 2007-08 food crisis, corn rose to $7.65 a bushel.

Sourced & published by Henry Sapiecha


Tuesday, May 1st, 2012

China producers want to export copper

By Jack Farchy in London and Leslie Hook in Beijing

Copper producers in China, the world’s largest importer of the metal, have announced plans to export the red metal, a rare move aimed at easing a shortage that has pushed prices higher.

Copper prices have risen recently after inventories of the metal outside China fell to unusually low levels, prompting a squeeze at the London Metal Exchange.

Jiangxi Copper, China’s largest copper producer, told the Financial Times on Monday it was planning “large” exports of the metal. The company will “export a certain number of [tonnes of] copper in the next few weeks,” said Frank Chen, senior trader at the company’s international trading division in Shanghai.

The move by China highlights the contrast in conditions inside the country, where demand is weak and stocks are mounting, with those in the rest of the world, where stocks are at their tightest for years.

The Chinese plan, first reported by Reuters, comes in response to a sharp fall in inventories at LME warehouses. Metals traders including Glencore have placed buy orders in recent weeks to take a record amount of the metal out of the exchange’s warehouses to supply their customers.

Excluding metal that has been earmarked for delivery, copper inventories at the LME have fallen to just 150,000 tonnes, the lowest since 2008. That has pushed the price of copper for immediate delivery to the biggest premium over longer-dated futures in four years, a sign of market tightness. The cost of copper for delivery in three months has risen to $8,496.75 a tonne, up nearly 8 per cent in two weeks.

On the other hand, stocks inside China are at record highs, leading some traders to suggest that China has “cornered” the copper market.

The high level of stocks and weaker-than-expected demand within the country have depressed prices on the Shanghai Futures Exchange, putting pressure on companies such as copper smelters who buy the metal in the global market and sell it in China.

“The Chinese smelting industry is bleeding very badly at the moment,” said James Luke, analyst at CICC. “For Chinese smelters you have to import based on LME prices but then sell into the Chinese market and they lose money on that.”

The export plan is difficult to implement because companies would need to ship metal from China to South Korea or Singapore to sell it at LME prices, a process that would take weeks since there are no LME-registered warehouses in China.

If Chinese companies fulfil their promise to export large volumes of copper, the move could depress LME prices in the next few months, analysts said, especially if it was combined with a fall in imports. “The LME has become disconnected from end market demand,” said Guy Wolf at Marex Spectron, a commodities brokerage.

But if the Chinese economy picks up again in the second half of the year, the exports could lay the foundation for a larger rally.

“The single biggest importer of copper on the planet wants to export copper because there is not enough of it outside their own country,” one trader said. “Then what happens when China needs to feed its own requirements?”

Some traders also expressed scepticism about how much copper Chinese smelters could export given their long-term supply commitments to customers within China, and various restrictions and taxes on refined copper exports.

Sourced & published by Henry Sapiecha


Tuesday, December 13th, 2011


Saudi Arabia is by far the world’s largest oil exporter. Thus, when it raises its production, oil prices usually fall. Yet, when Ali Naimi, Saudi oil minister, said last week Riyadh was pumping more than 10m barrels a day, prices barely moved a few cents.

Oil traders were in disbelief at the number. The International Energy Agency estimated that in October the kingdom pumped 9.45m barrels a day and Opec itself put Saudi production at 9.47 b/d in the same month. The level of production that Mr Naimi stated suggested a huge increase, in only a few weeks. Moreover, the 10m b/d is a psychological barrier – a level the kingdom has not reached since the aftermath of the second oil crisis in 1979.

The level of Saudi oil production has triggered a heated debate among oil traders, analysts and government officials.

The discussion is twofold: on the one hand, about the level itself; on the other, about why it has boosted its output at a time when many are betting that oil demand growth is slowing down, not accelerating.

The discussion is critical to understand the direction of oil prices in 2012.

The 10m b/d figure is controversial in the market.

Some oil traders do not believe the number at all. Two of the largest top-five independent oil trading houses have told me that their own numbers suggest a much lower production level. The traders largely dismiss the 10m b/d figure as a bargaining tactic ahead of the Opec meeting on Wednesday.

Yet, other sources suggest that Saudi Arabia has indeed boosted production sharply over the past few weeks, potentially towards the 10m b/d mark.

The Lloyd’s List Intelligence Apex database, which tracks tankers around the world, puts Saudi Arabia’s oil exports at nearly 7.4m b/d. Add local demand of about 2.7m b/d and you get to the 10m b/d. In addition, Lloyd’s List Intelligence estimates suggest that Riyadh boosted month-on-month exports sharply, from 6.7m b/d in October to 7.4m b/d in November. Other tanker trackers have yet to publish their numbers, but the talk in the market is that they also have witnessed a big increase in tankers sailing from Saudi oil export terminals.

So if the numbers are right – a big if for many traders – what do they say about the health of the global oil market?

The International Energy Agency puts global oil demand this quarter at 91.4m b/d, up from 90.9m b/d from the previous quarter due to the onset of the Northern hemisphere winter and the surge in heating demand. The seasonal increase in demand could well explain an output hike.

But I think there is more. China’s oil demand, which only a month ago appeared to be slowing down to a halt, could be accelerating in reality. Chinese refiners processed a record amount of crude oil in November to offset diesel shortages and oil imports surged last month to the second-highest monthly volume on record, hitting 5.52m b/d, just short of an all-time high of 5.67m b/d in September 2010, according to estimates by Thomson Reuters based on official Chinese data.

The bottom line is that Saudi Arabia could very well be telling a lot of naysayers and sceptics in the market that global crude oil demand is a lot healthier than many assume.

Sourced & published by Henry Sapiecha