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China lowers coal export levies to boost ailing economy

Tuesday, December 23rd, 2014

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China, the world’s biggest coal consumer, is cutting export tariffs for the fossil fuel beginning Jan. 1 and it will also correct those for a range of other commodities particularly some consumer products and parts to make high-tech devices.


The move, which aims to spur domestic demand and promote industrial upgrading, comes after relentless lobbying by the China National Coal Association, as a sharp drop in the commodity price has left about 70% of the country’s miners in the red and more than 50% to owe wages, Reuters reports.

Other items that will see lower tariffs next year include camera lenses and lasers for fiber-optic communication systems, the Ministry of Finance said in a statement on its website Tuesday.

Last month the Asian giant signed a free trade agreement with Australia that eliminates a 6% import tariff on power-station coal and a 3% levy on steelmaking coal coming from Down Under.

China’s dependence on coal is well known. Annual consumption exceeded 1 billion short tons per year in 1988 and has exploded since then, to about 4 billion tons last year. This means the Asian giant gets about 70% of its energy from the fossil fuel, a number the government hopes to reduce to 65% by 2017.

In the past three years Australia’s coal industry has experienced challenging times with prices for thermal coal, which consumed by power stations to generate electricity, dropping over 40%. More than 30,000 mining jobs have been lost in Australia this year amid a slump in the price of key commodities like coal and iron ore.

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Henry Sapiecha


Saturday, September 13th, 2014












But China’s seemingly endless appetite for iron ore has been finally been shown to have limits, and the iron ore price has been driven lower by the ever-increasing volumes of iron ore leaving Australia and Brazil.

Only now, as the price for Australia’s top export commodity slumps at a five-year low, does there appear to be a consensus that iron ore, and mining generally, was helping to prop up government revenues and sections of the economy far away from the rocky gorges of the Pilbara.

The recent corporate reporting season was littered with companies that named weakness in the mining sector as a factor in their own underperformance.

The trend went far beyond the traditional mining services crowd and was seen in airlines, media publishers and even clothing manufacturers who have noticed demand for their workwear products to be lower than in the past.

No longer a debating point, the lived experience in Australia suggests life is harder beyond the peak of the iron ore boom.

Not even the boldest iron ore bull would deny the recent slump in the iron ore price slump is serious.

In a consistent slide since December 4, 2013, the benchmark iron ore price has fallen 41 per cent to reach the point where several of Australia’s junior exporters are barely break-even propositions.

Two microcaps trying to export from the gulf region of the Northern Territory, an off-broadway location in the world of iron ore, have already gone bust, while others like Gindalbie appear to be approaching something like a death spiral.

A huge increase in iron ore supply from the major exporters – Rio Tinto, BHP Billiton, Brazil’s Vale and Fortescue Metals Group – has correctly been named as a major factor driving prices lower, but ANZ commodity analyst Mark Pervan said weakness in the Chinese real estate and steel sectors had also conspired to create a “perfect storm” of factors in 2014.

At this week’s prices below $US83 per tonne, Mr Pervan said iron ore had now fallen too far.

“Markets never get it right straight away, they always overshoot on the up side and the down side, and I think we are seeing a classic example here of overshooting on the down side,” he told a Bloomberg event in Melbourne this week.

Citi’s China-based commodities analyst Ivan Szpakowski said the forces behind the price falls in autumn were different to the forces pushing down the price in recent weeks.

“[The second quarter] was very much supply-driven, but this is not,” he said, noting that iron ore deliveries to China have been lower in the past two months than they were in the June quarter.

“What you saw instead was very weak end-use demand and that came both from the fundamental weakness in Chinese real estate and also from seasonal weakness because August tends to be one of the weakest times of the year for steel demand.”

Mr Szpakowski said steel mills had been running down their stockpiles rather than purchasing iron ore, and with the price sliding by the day, he said mills and traders knew they could wait and buy later at cheaper prices.

“You had a few of these factors within China really driving the move I think,” he said.

From an Australian point of view, one of the starkest aspects of this year’s price slide has been the pressure put on companies that export lower grades of iron ore.

The sudden appreciation in value for lower grade iron ores, dismissed as worthless for decades, was one of the defining features of the early years of the mining boom.

Entrepreneurs like Fortescue’s Andrew Forrest and Atlas Iron’s David Flanagan were quick to seize on the emerging trend, and they created fortunes by snapping up territory that had largely been ignored by BHP and Rio because it was not considered to be good enough for the traditional export business.

While Rio and BHP continued shipping ores with 62 per cent and even 64 per cent iron, the new entrants made billions shipping ores with iron grades closer to 57 per cent.

But this year, with huge amounts of the top quality stuff coming into the market (and China making more of an effort to clean up the efficiency of its steel industry), the walls started to close in on those selling lower grade ores.

The discounts of about 7 per cent that they had always accepted for their product began to widen to as much as 20 per cent, sending profits lower and forcing those companies to focus on finding better quality product to export.

The dynamic has reportedly eased in recent months, but none the less, China’s waning appetite for our lower quality iron ore is a significant moment in the fading of the iron ore boom.

In March, UBS published its own estimates of break-even points for iron ore miners, suggesting that while BHP Billiton and Rio Tinto had substantial buffers – still breaking even with the iron ore price at $US45 and $US43 a tonne respectively – Fortescue’s break-even point was at US$72 a tonne and Atlas Iron’s at $US82.

The pain of the low price environment has naturally been reflected in the profits and share prices of the iron ore companies, but its true impact goes much deeper.

Iron ore ranks as Australia’s most lucrative export commodity and an important part of state and federal government budgets.

Leading economists estimate the iron ore price declines seen this year have robbed the federal government of between $US10 billion and $US15 billion in revenue, forcing it to chase new sources of revenue in unpopular places.

“With an iron ore price like this, it is going to lower nominal growth,” said former treasurer Wayne Swan, whose time in charge of the national purse was also bedevilled by iron ore price volatility.

“You’d have to say [the Abbott Government] would be starting to think that they’ve got a bigger challenge on their hands than they would have thought at budget time,” said Mr Swan.

The situation is far more problematic in the iron ore industry’s home state of Western Australia, where less than seven years ago, revenue from all types of mining royalties represented barely 5 per cent of state government revenue.

Having risen every year since, iron ore alone will deliver 19 per cent of government revenue in the current financial year, rounding out at about $5.59 billion.

With iron ore revenues predicted to rise in every year of the four-year forward estimates period, Western Australia’s financial position could be sound.

But despite raking in billions of dollars from iron ore every year, WA mistakenly expected to be showered with even higher amounts of royalty revenues, and started spending before the proverbial chickens had hatched.

The WA government had expected iron ore prices to average $US122.70 this financial year, and will lose $49 million for every $US1 decrease in the average price below that target.

The state is now using debt to fund its high public-sector wages, its new football stadium and its riverfront redevelopment, and despite being at the epicentre of the decade-long commodities supercycle, no longer has a Triple A credit rating.

Campbell Jaski, a corporate restructuring expert at PPB Advisory, said a weaker Western Australian economy would unavoidably affect other state governments around Australia through the system of sharing GST revenues.

“The flow-on effect will hit all the other states, because as WA’s royalty rates reduce, their share of the GST which they currently give up to the other states will start to pull back,” he said.

“So all of a sudden Victoria, New South Wales, Tassie, Northern Territory, South Australia and Queensland will have to start paying back more GST revenue to WA as a result of the royalties falling in iron ore.”

Former federal resources minister Martin Ferguson said a diverse range of businesses would also be feeling the impact from lower iron ore prices.

“It also flows through to business in the loss of jobs and the loss of purchasing power,” he said.

“Declines in mining do have an Australia-wide impact. Think of the legal firms, the banks, environmental scientists, the airlines and the caterers, there is a huge multiplying effect.”

The existence of such links between the mining industry and the rest of the Australian economy has been hotly debated at times over the past decade, but the recent corporate profit season revealed no shortage of companies willing to bemoan the fading of the boom.

Airlines, from the fly-in, fly-out or FIFO-focused Alliance Aviation to the more mainstream Qantas, named weaker demand in the mining sector as a factor in their deteriorating profit position.

Fresh from building a large accommodation facility for iron ore workers near Port Hedland, accommodation provider Fleetwood reported that the WA market had become “subdued” in terms of winning new work.

The workwear clothing division that Pacific Brands recently sold to Wesfarmers had been affected for some time by softer than expected demand in the resources sector, while even Fairfax Media, the owner of this publication, blamed weak conditions in the mining sector for the lower revenues seen in its rural newspapers over the past year.

While some high-profile bears like former BHP executive Alberto Calderon expect the iron ore price to continue falling below $US80 per tonne, most investment banks expect it to be higher by Christmas.

Morgan Stanley expects the price to average between $US85 per tonne and $US95 per tonne in the 2015 calendar year, while Citi expects it to average $US90 per tonne in 2015 before slipping to average $US80 per tonne in 2016.

China’s demand for steel, and therefore iron ore, is expected to continue growing until 2025 or 2030, but beyond that time demand will need to come from somewhere else.

Rio Tinto has optimistically suggested that iron ore demand in India and South-East Asian nations like Indonesia and Vietnam will start to rise after 2020, but there’s little certainty around the predictions.

By then, Mr Calderon argues Australia must have moved on from its reliance on iron ore to be supplying China with “middle income commodities” like meat, grains, energy and copper.

But he warns that serious reform and investment in infrastructure will be needed to make that happen.

But amid the gloom, (and there has been plenty of it on offer this week), it’s worth considering the lot of the workers at Port Hedland, where the vast majority of Australia’s iron ore sets sail for Asia.

While the peak of iron ore prices and stock values was undoubtedly reached in early 2011, the sleep-deprived workers at Port Hedland know all too well that the peak for iron ore exports through the port is yet to come.

Australian exporters will continue to grow the volume of exports each year until the end of the decade at least, and according to some estimates the increased export volumes should be enough to offset the falls in the commodity price, ensuring consistently higher export values.

Despite the severe price falls that have already been witnessed in the early months of the 2015 financial year, the federal government’s top commodities forecaster, the Bureau of Resources and Energy Economics (BREE), predicts the value of Australia’s iron ore exports will be about 3 per cent higher this year than last at just under $80 billion.

Export values were tipped by BREE earlier this year to continue rising on the back of higher export volumes at a compound annual growth rate of 7.4 per cent to reach $87.7 billion by the 2019 financial year, but those numbers could yet be revised down when the bureau updates its forecasts later this month.

Cleveland Mining boss David Mendelawitz was involved in the early Fortescue days when iron prices were closer to $US30 per tonne.

He reckons the strength of the sector depends on your perspective.

“Prices are not low, the issue is that costs are high. Not so long ago people would have wet their pants in excitement at the prospect of $US80 per tonne iron ore prices.”

Henry Sapiecha


Tuesday, December 11th, 2012

Professor Martyn Poliakoff toured the Bank of England’s gold vaults, which contains $315 billion worth of bullion, and felt a little sad.

“In some ways, seeing these bars is quite disappointing because gold is an exciting element. It has interesting chemistry, and it’s just sitting here doing nothing,” said Poliakoff, who hosted a gold episode of The Periodic Table of Videos.

“It’s enormously impressive. It’s a bit sad, like a mausoleum where the dead gold is sitting, waiting for people to remember it when it could be doing exciting reactions.”

While touring the vault, Poliakoff notes that each shelf alone contains a tonne of gold worth $56 million.

“I have never seen so much of any element. Ones first reaction is that it can’t be real, because one doesn’t see such things.”
Marketing with no money

Sourced & published by Henry Sapiecha

Saturday, October 13th, 2012


Wednesday, June 6th, 2012

Ka Gold Jewelry


On Wednesday, Plato Gold (CVE:PGC) released the results from the ground magnetic survey completed on its Lolita property in Santa Cruz, Argentina, outlining numerous structures and geochemical anomalies.

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The company said a previously little known northeast-trending cross-structure has been identified at the Panza and Colita areas, and is in keeping with structures known to host anomalous trace elements often associated with gold and silver deposits.

Meanwhile, at the Corazón area, a magnetic high of 1.5 kilometres in diameter has been associated with the northwest-trending, potentially mineralized structures known to host hydrothermal structures and anomalous arsenic values. Within this high are strong, linear, northwest-trending magnetic features, Plato added.

“I am very pleased that Plato, with the help of Dr. Paul Lhotka, has taken the Lolita property in Santa Cruz to the current stage of added value by progressing the info base for the gold bearing site,” said president and CEO, Anthony J. Cohen.

“What was a pure green-fields exploration property is now a property that has outlined structures with geochemical anomalies.”

Gold Company

Rock sample results from the property have also returned highly anomalous values for arsenic, antimony and mercury, which are often considered pathfinder elements for precious metal deposits. Trace element values returned over 10,000 parts per million (ppm) arsenic, over 2,000 ppm antimony, and 106,548 parts per billion mercury.

Plato Gold said it is currently planning a ground induced polarization survey to further define targets for a drill program later this year.

Plato holds a 75% interest in the joint venture Lolita property, with Dr. Paul Lhotka holding the remaining 25%.

The company, whose stock on the TSX Venture Exchange was up 12.5%, trading at $0.045 per share on Wednesday afternoon, also has projects in Ontario and Quebec.

The Nordeau mineral resource in Val d’Or, Quebec recently posted indicated resources of 30,212 ounces of gold on an average grade of 4.17 grams per tonne (g/t), and inferred resources of 146,315 ounces of gold, at an average grade of 4.09 g/t.

Gold Company

Sourced & published by Henry Sapiecha


Friday, December 2nd, 2011

Chinese manufacturing activity has contracted for the first time in almost three years, adding to fears about the health of the global economy.

The decline comes a day after the US Federal Reserve led a co-ordinated move to ease global liquidity concerns – particularly in Europe – and the Chinese central bank loosened monetary policy.

Chinese government data released on Thursday showed that the official purchasing managers’ index fell to 49 in November from 50.4 in October. The worse than expected fall marked the first decline since February 2009. A reading of less than 50 means the manufacturing sector has contracted.

In a surprise move that was clearly timed to offset the negative impact of the PMI number, China’s central bank on Wednesday kicked off a new round of monetary easing by announcing a cut in the reserve ratio for banks for the first time in three years.

“The markets have been handed a powerful one-two combo, in the form of a shocking PMI print and an aggressive RRR cut,” said Alistair Thornton, China analyst at IHS Global Insight. “The message is clear: the economy is slowing much faster than expected and the government has stepped into the ring.”

Most analysts did not expect monetary easing to begin until at least the first quarter of next year , but Beijing is facing the prospect of a stall in its two biggest growth engines – exports and real estate. Policymakers are now more concerned about supporting growth than tackling inflation and are expected to announce more monetary loosening measures in the ensueing months.

That reverses two years of gradual monetary tightening in which the government has been trying to cool growth and rein in persistently high price increases in a campaign that appears to have been largely successful.

The FTSE Asia Pacific excluding Japan index jumped 4.2 per cent by early afternoon in Hong Kong, taking its cue from a 4.3 per cent surge in the S&P 500 overnight and a 5 per cent jump in Germany’s Dax.

In Tokyo, the Nikkei rose 2.1 per cent to 8,614.62, while in Seoul the Kospi jumped 4.1 per cent to 1,922.55. The best performer in the region was the Hang Seng, which surged 5.6 per cent to 18,991.10.

Stephen Green, economist at Standard Chartered, said the decline in Chinese manufacturing “looks like the nasty scissors of lagging wage hikes and poor orders” affecting the small and medium-sized business sector in the country.

Underscoring the impact of the eurozone crisis on China, David Liu, president of Luca Angelo Leather, a company that makes mid-priced handbags in China for export to Europe, said sales to the continent had declined by between 30 and 40 per cent over the past two months.

By reducing the amount of deposits banks must hold on reserve by 0.5 percentage points, the central bank in effect injected about Rmb400bn ($63bn) into the banking system so that lenders could extend more credit to the slowing economy.

A parallel PMI survey compiled by HSBC also fell in November, dropping to 47.7 from 51 the previous month. The reading was the lowest since March 2009, and slightly worse than a preliminary reading of 48 issued last week.

JPMorgan analysts said they expect consumer inflation to be about 4.5 per cent in November, down from 5.5 per cent in October and well below the peak of 6.5 per cent in July. The input prices sub-index of November’s official PMI, an indicator of inflationary pressure, supported that forecast, declining to 44.4 from 46.2 in October.

But pulling down inflation has come at the cost of a steeper than expected drop in growth. In a sign that the economy is likely to slow even more in the coming months, the new orders sub-index fell 2.7 points to 47.8, while the new export orders sub-index dropped 3 points to 45.6.

Exports to the EU and US, China’s two largest trading partners, have decelerated in recent months and the fall in export growth to crisis-hit Europe has been particularly pronounced.

Meanwhile, real estate sales volumes have dropped sharply across the country and more than halved from a year earlier in some large cities while prices have also started to decline.

Although construction growth in the country has held up until now, most property developers appear to be delaying new projects, raising the prospect of a halt in housing construction that could be devastating for the overall economy in China.

Real estate construction accounted for around one-quarter of all investment in China last year and about 13 per cent of GDP.

Sourced & published by Henry Sapiecha

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Sunday, June 5th, 2011

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