South Sierra Madre Mineral & Brokerages Service (SSMMBS)

11/4/2011

[Edition 1, Volume 1]

INTELLIGENCE WEEKLY
(COVERING: THE IRON ORE INDUSTRY.)
$10.00usd

THE WEEK IN REVIEW

October 29 th - November 4 th , 2011
The price index for 63.5-percent-grade iron ore imports slumped 13.5 percent, or 20 points, to $128/dmtu (as low as $118/dmtu) points in the week, while the index for 58-percent-grade imports lost 7.3 percent, or 8 points, to $101/dmtu. The question of the day is seems to be: Will the price of Iron Ore stop dropping? The answer is two fold. Part 1. Yes, the Iron Ore market will stop its downward plummet and the price will rise back into the $130/ton or higher. (Caveat: See Part 2. Greece/USA) This upward pressure is based on the following:
Watching iron ore inventory at 50 smaller steel mills which during previous price slow-downs, from January-March and May-July, fell to 28 days of use. In contrast, inventory at mills yards and in port and transit has slumped to just 21 days towards the end of October. (the smaller mills will have to re-stock soon and this will push the demand [price] back up. Some Chinese producers have costs as high as $150-160/ton, and costs for a quarter of all Chinese supply are above $135/ton, Reuters quotes Macquarie Bank as saying. Meanwhile, Vale estimates that around 120 million tons of Chinas own production is now underwater at current prices, prompting both miners and investors to believe significant cutbacks will feed through to higher import demand, eventually. Uncertainty over the future of the Euro and therefore steel demand is making Steel mills hesitant to continue expanding production: Eurofer, the association which represents steelmakers such as ArcelorMittal, the world's largest steelmaker, Germany's ThyssenKrupp and Austria's Voestalpine, said Friday it expects real steel consumption to grow 6.1% this year and grow a more modest 2% in 2012.

Part 2. The Greek prime minister called for a referendum on the proposed EU bail out. The PRICE WATCH IRON ORE: 58% 11/4/2011
$101/dmtu

63%
$118/dmtu

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Historical: 30days

63% (hi/low) $177/$118

opposition party immediately called for a no confidence vote in the current administration. This political uncertainty could cause the Euro to crash and lead to further Country (Spain & Italy)defaults on loans. This would directly affect the steel market as the EU purchases nearly 20% of the worlds production of steel. In the USA though 3Q productivity reports (labor efficiency or how much it cost to produce goods) was up by 3.1% which produces downward pressure on inflation and will help the US economic recovery. This being an election year the sitting president will produce numerous short term injections into the US economy to help his reelection. this will spur short term demand. All of this means higher steel prices.

SPOT MARKET: The spot market or cash market is a public financial market, in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market in which delivery is due at a later date. A futures market has transactions for which commodities can be reasonably expected to be delivered in one month or less. Though these goods may be bought and sold at spot prices, the goods in question are traded on a forward physical market.

CONTINUING EDUCATION

November 5 th - November 11 th , 2011

So, what does this all mean for the upcoming week. Smaller Steel mills in china will have around 14 days left of remaining stock of Iron Ore. They will re-enter the market by mid week or else risk having to shut down (which they wont do.). The big investors and players will sit back and continue to wait to see how the story plays out in Greece. Chinese Iron Ore producers will be operating at a loss with prices below $130/dmtu and will be pushing for higher price. Brokers purchasing ore will attempt to push prices further downwards. But in order to get an idea of the outlandish markup they have had on Iron Ore do this math: In September Iron Ore was being bought for $177/ton on the China docks (and contracts between Rio/Vale/BHP and Chinese Steel Mills were for $175/ton) and the brokers were paying $85/ton. The price they are being paid dropped almost $60/ton and they have only reduced their prices by $20/ton to $65/ton to Miners. Prediction: Nov 11th, 2011:Price=63%=$125/dmtu.

ON THE HORIZON

QUOTE OF THE DAY: Choose a job that you like and you will never have to work a day in your life - Confucius - Confucius
FOR FURTHER READING INFLATION

Inflation is the state in which prices go up and buying power of currency goes down. (This doesnt mean that personal buying power goes down, because income may be rising faster than prices.) Inflation may be observed in any of three types:
Demand pull: Happens with high levels of employment. When demand exceeds supply, prices go up: a boom period or, if you will, good inflation. Change in composition of output: Happens when an economy shifts its emphasis to the creation and delivery of services rather than products. This is thought to be related to the notion that economies of scale for services are exhausted sooner than those for products Cost push: Happens when supply diminishes relative to demand. This, in effect, increases demand and drives prices up. It is characterized by high unemployment and is especially dangerous when accompanied by stagflation, increases in price in the absence of economic growth.