GRAINS-Soy rebounds from 6-week low; wheat, corn extend losses

Tue Sep 25, 2012
* U.S. soybeans rise 0.5 pct on end-user buying

* Wheat, corn futures fall for 2nd day

* U.S. farmers on record harvest pace despite rain

* Rains to aid Brazil's soybean planting
By Naveen Thukral
SINGAPORE, Sept 25 (Reuters) - Chicago soybean futures bounced back on Tuesday on demand from end-users, recouping some of last session's losses that drove down prices to a six-week low, while pressure from a record pace of U.S. harvest capped gains.

Corn edged lower, falling for a second straight day, while wheat lost more ground on forecasts for rain this week in the U.S. Plains which will aid winter crop planting.

U.S. farmers maintained their record pace of harvesting corn and soybeans during the past week although they were not running combines flat out due to some rainy weather.

The U.S. Department of Agriculture on Monday said corn harvest was 39 percent complete as of Sept. 23, up from 26 percent a week earlier. The soybean harvest rose to 22 percent complete from 10 percent.

Analysts had been expecting the corn harvest to be 41 percent finished and the soybean harvest 20 percent, according to the average of estimates in a Reuters survey of 14 crop watchers.

"People look at any dip in prices as an opportunity to buy and for investors it is an opportunity to go long," said Abah Ofon, an analyst at Standard Chartered Bank in Singapore. "I don't see the market treading lower and lower, I think there is some more upside potential as supplies are very tight."

The USDA earlier this month forecast soybean ending stocks next summer to be the lowest in nine years and the stocks-to-use ratio at the lowest in nearly five decades.

Chicago Board of Trade November soy rose 0.5 percent to $16.17-1/2 a bushel by 0308 GMT, after touching a low of $15.90-1/4 a bushel on Monday, its weakest since Aug. 14.

December corn lost 0.3 percent to $7.42-3/4 a bushel and December wheat slid 0.2 percent to $8.90-1/4 a bushel.

Soybeans has dropped 8 percent in the last three weeks on profit-taking and investment portfolio balancing after the market set an all-time high of $17.94-3/4 a bushel.

Analysts expect the USDA to raise its estimate of the soybean yield in its next crop update on Oct. 11, based on stories of better-than-expected output so far in the harvest.

The market has also been pricing in estimates of bumper production in South America early next year as high prices encourage farmers to boost planting.

Light showers fell over Brazil's grain belt over the weekend and are likely to continue throughout the week as farmers sow what could be a record soybean crop, local forecaster Somar Meteorologia said.

The first rain in months late last week spurred farmers to start planting what the USDA sees as an all-time high crop of 81 million tonnes.

The wheat market, which has been buoyed in recent weeks by talk of Russia curbing exports, is being weighed down by forecasts of rains in the U.S. Plains, where farmers are planting the winter crop.

In its weekly crop progress report on Monday, the USDA said farmers finished planting a quarter of the winter wheat crop as of Sunday, compared with 11 percent a week ago.

 Prices at  0308 GMT
  Contract        Last    Change  Pct chg  Two-day chg MA 30   RSI
  CBOT wheat     890.25    -1.75  -0.20%    -0.78%     890.26   58
  CBOT corn      742.75    -2.00  -0.27%    -0.74%     788.42   32
  CBOT soy      1617.50     7.50  +0.47%    -0.26%    1696.86   33
  CBOT rice      $15.16   -$0.03  -0.16%    -0.52%     $15.32   58
  WTI crude      $92.31    $0.38  +0.41%    -0.62%     $95.45   35
  Currencies                                               
  Euro/dlr       $1.294   $0.001  +0.10%    -0.28%
  USD/AUD         1.044    0.002  +0.21%    -0.16%
  Most active contracts
  Wheat, corn and soy US cents/bushel. Rice: USD per hundredweight
  RSI 14, exponential

(Editing by Himani Sarkar)

Corn, soybean users snap up supplies as funds sell

24th Sept 2012, by Agrimoney
The fierce selling by funds of Chicago crops has met with a barrage of buying by commercial operators – solving one market puzzle, but potentially creating another in appearing to downplay the extent of farmer sales.

Investors have questioned how open interest levels – the number of live contracts in place - have remained relatively stable in Chicago corn and soybean futures despite the selldown by funds which has fuelled a slump in prices.

Benchmark December corn futures stand some $1 a bushel below their high last month, with November soybeans down some $1.50 a bushel from an early September peak.

"The market has struggled to explain this massive fund liquidation with open interest only nominally changed," Kim Rugel at Benson Quinn Commodities.

In the week to last Tuesday, open interest fell by a relatively small 11,000 contracts in soybeans and rose by nearly 30,000 lots in corn, regulatory data late on Friday showed.

Funds vs commercial buyers

However, the stability was reflected in part in corn by extra short positions taken out by managed money, a proxy for speculators, which raised its short bets – which profit when prices fall – in futures and options to the highest since early July.

Speculators showed less enthusiasm for raising short bets in soybeans, even as they cut long exposure, which benefits when prices rise.
Furthermore, end users appear to have slapped on substantial coverage, more than outweighing sales through derivatives by farmers, whose selling pressure has been seen as a key weight on markets.

In corn, commercial investors, which covers both commodity users and producers, cut their overall net short position by more than 26,000 lots, and in soybeans by nearly 30,000 lots, the data from the US Commodity Futures Trading Commission showed.

The statistics show "that the fund liquidation was answered with commercial buying and that commercial harvest pressure was probably not the selling that triggered the fund liquidation", Ms Rugel said.

However, a UK grain trader told Agrimoney.com that harvest pressure "is going to get funds in a selling mood" even if not reflected in futures position dynamics, which also in turn excluded cash market sales.

Broad sell-off

The CFTC data showed speculators continuing to slash net long positions in a range of crops, extending a wave of liquidation reflecting both broader market concerns and crop-specific factors.

In Chicago wheat, the managed money net long   sank by 8,400 lots, its quickest rate of decline since May, while in soymeal, the net long fell below 60,000 contracts for the first time since at least the spring.
In New York, cotton also had its worst week since May, in terms of the rate of decline of speculators' net long position, with cocoa suffering its biggest change of sentiment since April.

In sugar, for which prices returned near two-year lows last week, managed money cut its net long position to a three-month low.

BarCap upbeat on grain futures - as prices dip

24th Sept 2012, by Agrimoney
Barclays Capital forecast a revival in grain and oilseed prices, even as they lost further ground on Monday, but flagged a poor prospects for sugar futures, which it saw performing far worse than investors have factored in.

The investment bank said it saw "further potential upside for some agricultural commodities", notably the main Chicago crops, thanks to a lack of success for high prices in curtailing demand.

While prices continued to decline on Monday, when the benchmark November soybean contract fell at one point below $16 a bushel for the first time in a month, the continued decline in prices in recent weeks reflected pressure from the one-off rise in supplies brought by harvest, an effect which would soon ease.

"Prices have softened in the near term as the US harvest progresses, but beyond seasonal pressure, we do not expect weakness to last long," BarCap analyst Sudakshina Unnikrishnan said.

'Further demand rationing in order'

For corn, while acknowledging that high prices have "led to rather weak US export sales demand over recent weeks", Ms Unnikrishnan flagged a revival in consumption of the grain by ethanol plants.

"While demand has been softening, with the precarious level of US inventories, we believe further demand rationing is in order to keep inventories at minimum required levels," she said.
"Corn prices will need to stay high enough to incentivise US acres," in spring plantings next year, "competing with record high soybean prices."

Corn prices, as measured by Chicago's front month contract, will average $7.90 a bushel in the last quarter of this year, nearly $0.50 a bushel above where the December lot was trading on Monday, and at $7.99 a bushel in 2013 – also well above the futures curve.

Prices will move "higher in the fourth quarter of 2012, remaining elevated through the 2012-13 marketing year".

'Keep prices elevated'

Soybeans will see "a move above $18 a bushel", implying a fresh record high, after harvest pressure wanes, Ms Unnikrishnan said, noting a "lack of evidence of demand rationing so far despite elevated prices, with weekly US exports remaining in rude health.

"Tight global supplies following a series of production downgrades, strength in Chinese import demand, extremely low US inventories and the year on year drop in South American inventories will keep prices elevated."

BarCap forecast prices averaging $17.30 a bushel next year, well above prices that futures are pricing in, with the November 2013 contract trading at $13.44 a bushel on Monday.

And for wheat, the bank said it was "positive" on price prospects, seeing Chicago prices averaging $9.09 a bushel, a little more than futures are counting on, noting that wheat stocks in many leading exporting countries were expected "to post double-digit year-on-year declines in 2012-13".

Stocks in exporter countries are particularly important as they are the ones that importers rely on for supplies, rather than the estimated 31% of world inventories tied up in China "which are not going to find their way to the global market".

'Expected to dampen prices'

However, the bank sounded a downbeat note on sugar prices, despite coming in with an estimate for the world production surplus in 2012-13 which, at 4.8m tonnes, was lower than some other forecasts, such as one last week from Czarnikow.

"The global sugar surpluses in 2011-12 and 2012-13 are likely to add to global stocks," BarCap analyst Kate Tang said.
"Remaining in surplus territory should allay supply concerns and help inventories to rebuild from recent lows.

"This surplus, along with slowing demand, is expected to dampen prices," which will average 18.0 cents a pound next year well below levels of more than 20 cents a pound futures are pricing in.

'Brazil is getting enough rain'

Crop prices on Monday failed to conform to the direction set by BarCap, with raw sugar for October rising 0.6% to 19.50 cents a pound, boosted by talk of rains disrupting cane harvesting in Brazil.

However, the rains are seen as positive for soybean sowings, providing moisture for dry soils, so fostering a 0.9% drop in futures in the oilseed, with a tumble in palm oil futures depressing the complex too.

"Brazil is getting enough rain to pre-empt widespread planting delays, although the north-west half of their growing area still leading dry for next 10 days," Richard Feltes at broker RJ O'Brien said.

He also flagged, "tepid corn export demand, fund liquidation, better than expected soybean yields and poor chart action" in price declines.

Wheat, the price leader early in the day, turned Chicago's weakest contract, softened by forecasts for much-needed rain in Western Australia, with the December contract's failure to hold its 50-day moving average further stoking selling pressure.

Soybeans Set to Rebound From Six-Week Low on Importer Purchases

By Phoebe Sedgman - Sep 25, 2012
Bloomberg
Soybeans are poised to climb on speculation that a slump to the lowest price in six weeks may boost demand among importers. Corn and wheat declined.
Soybeans for November delivery traded little changed at $16.1025 a bushel on the Chicago Board of Trade at 2:19 p.m. in Singapore after swinging between gains and losses. The price touched $15.9025 yesterday, the lowest level since Aug. 14.

Futures have lost 10 percent from a record $17.89 on Sept. 4 on signs of slowing demand after the rally, which was driven by a U.S. drought that reduced yields, and prospects for increased supply from South America.

“We have seen some heavy selling over the past few days, so it could be some bargain hunting,” said Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd. “It’s gone through some key technical levels.”

Corn for December delivery dropped as much as 0.6 percent to $7.405 a bushel and traded at $7.4225. The price reached a record $8.49 on Aug. 10. December-delivery wheat fell as much as 0.7 percent to $8.8575 a bushel and was at $8.8775.

Is govt cornering wheat market?

Sanjeeb Mukherjee / New Delhi Sep 25, 2012,
Business Standard
Excess procurement of wheat by government agencies has stirred a demand for intervention by the Competition Commission of India (CCI), on the ground that the state is creating a near-monopoly over the grain trade.

The argument has gained support from the Commission for Agricultural Costs and Prices (CACP) itself, the government’s nodal agency for setting floor prices of farm commodities. In its latest report, on the rabi crop price policy for 2012-2013, it has said this action by the government has made state-owned Food Corporation of India (FCI), the biggest hoarder of wheat in the country.

India’s wheat stocks as on September 1 were estimated at 46.2 million tonnes, about 230 per cent more than the requirement. Overall foodgrain stocks (also comprising rice and coarse cereals) were estimated at 71.9 mt, much more than the required 21.2 mt.
In the 2012-2013 wheat crop marketing season, state agencies had procured 38.1 mt of wheat from farmers till the middle of July, almost 95 per cent of total market arrivals. FCI’s own share in total wheat procurement has been 13-20 per cent in the past five years but in many places, state agencies procure on behalf of it.

The complaint is that this massive procurement, plus inadequate release of stocks in the open market, has created a situation of near-monopoly in the country’s wheat market, leaving very little for private trade. Public monopoly is as bad as private monopoly; hence, CCI should immediately look into the matter, the CACP report had said.

“In Haryana, Uttar Pradesh and Punjab, the government is selling wheat from its inventories at a rate higher than the one in southern India, which goes against the basic economic logic, as commodities in producing areas should be priced lower than in non-producing areas,” said Veena Sharma, secretary of the Roller Flour Mills Federation of India, to Business Standard.

She said the government logic was taxes in Punjab, Haryana and UP were higher than in southern states, raising the cost of purchases. However, with the abnormally high prices, the government was discouraging the growth of value-added industry in the main wheat producing states, she said.

The government, on its part, said it had already allocated around eight mt of wheat for sale in the open market to bulk consumers such as flour millers and biscuit makers, to check rising prices. Of this, around 1.3 mt has been sold and another 1 mt will be sold in the next few weeks.

A senior panel of government officials has also decided to release a minimum 2-2.5 mt of wheat in the open market every month from October, to quell the price rise.

Ramesh Chand, director of the National Centre for Agricultural Economics and Policy Research, however, disagreed with the proposition that the government holding of large quantities of wheat made this a fit case for CCI to investigate. “It’s a free market and anyone who pays more could purchase wheat; in this case, it is the government. Besides, the government can create a monopoly in the public interest,” Chand said.

He said only courts could direct the government to release more wheat in the open market.

India harvested a bumper wheat crop of 93.9 mt in the 2011-12 crop year (July-June).

Export curb likely on rice, wheat, sugar & cotton

Anindita Dey / Mumbai Sep 25, 2012,
Business Standard
The government might soon review its export policy for rice, wheat, sugar and cotton. Shipments abroad of these commodities might be curbed till the full harvest arrives and the festival season ends.

Their export is currently allowed under Open General Licence, meaning no permission is required. According to officials, the departments of food and consumer affairs have both objected strongly to the free commercial export of rice, wheat and sugar, with their high prices in the domestic market. Rice and wheat stocks available in storages were for maintaining buffer stock levels and for the Public Distribution System (PDS); these could not be diverted for retail consumption in the domestic market, they said.

The domestic price of rice has been going up. The first advance estimates of the Union agriculture ministry says rice output is being projected at 85.6 million tonnes (mt), compared to a record 91.5 mt last year. Official sources said the recommendation is to restrict free export of rice for the rest of this financial year, except for the top-end basmati rice, mainly produced for export. The price of rice across the country has gone up by two to 30 per cent year over the year, barring the eastern states, which are having a second crop.

Sugar is witnessing a rise in prices and officials feel even if the output of cane is high, productivity (conversion to sugar after crushing) will be lower due to lack of rain. Export of sugar had stopped since domestic prices began rising. The ministry has recommended banning export till at least December, when the festive demand is over and the second harvest will arrive in the market.

Across the country sugar prices have gone up by 25-58 per cent year on year and might go up further. Output this year is estimated to be the same as last year.

A ban on sugar export, say officials, wouldn’t hit millers, as the government proposes to raise the price of levy sugar for the PDS to Rs 22 a kg from the Rs 13.5 a kg fixed since 2002. This would help the industry recover around Rs 12 a kg from selling sugar under PDS.

A shortage in cotton output is expected due to erratic rain. The free export policy comes to an end in a month. The textile ministry had already recommended a ban on export till the market showed surplus availability for the domestic industry.

Cotton prices in Tamil Nadu and Uttar Pradesh have risen 25 per cent over a year. The first advance estimates, show cotton production at 32 million bales (of 170 kg each), compared to last year’s 35.2 million bales.

Would world sugar production come out of the bear grip?

Kunal Bose / Sep 25, 2012
Business Standard
The 2012-13 world sugar season would start in about a week. But we already have first global production and seasonal surplus estimates from Jonathan Kingsman (he owns an eponymous consultancy) to Rabobank to International Sugar Organisation (ISO). As we have routinely seen in the past all such forecasts come for revisions more than once as the season progresses depending on behaviour of weather, particularly in major cane and beet growing regions.

To give a recent example, rain-related disruptions in cane harvesting earlier this year has led to lowering of Brazilian sugar production estimate and in turn, global surplus.

Here at home, the monsoon has run its course this time in a way as to negatively impact the cane crop in Maharashtra and Karnataka. In both states, due to insufficient rains in the beginning, land is less under cane and factories are reconciled to a lower sugar recovery rate than in 2011-12. Moreover, drought condition earlier led Maharashtra to use of some standing cane crop as fodder. As a result, pre-monsoon robust optimism about 2012-13 sugar output gave way to some moderation. Ahead of the monsoon with the weatherman predicting good rains, the general expectation was that farmers buoyed by highly rewarding cane prices and practically no outstanding cane bills would grow the crop over a bigger area. This would have ensured sugar production next season at par with 26 million tonnes (mt) in 2011-12, if not larger.

The capricious monsoon till July end, however, played spoilsport. So, production estimates for 2012-13 now range from a low of 23.5 mt by ED&F Man to a high of 24.5 mt by National Federation of Cooperative Sugar Factory (NFCSF), which should know better than any other agency as to how much sugar to expect from Maharashtra, by far the country’s biggest sugar producing centre. Indian Sugar Mills Association thinks production will be 24 mt.

How much land farmers in a country will commit to cane or beet during a season will necessarily depend on how returns from the crop are stacked against other agricultural produces. Cane has this time come winner both here in this country and China.

The land under cane in India is up by 254,000 hectares to 5.354 m hectares, in spite of shrinkages in Maharashtra and Karnataka. ISO will attribute the next season’s rise in Chinese sugar production by 1.1 mt to 13.6 mt to remunerative cane and beet prices. Next season will be the third in a row when Indian production of the sweetener will be in excess of consumption, which is rising at an annual rate of around four per cent, against global average of 2.2 per cent.

If this feat of production staying ahead of domestic use is repeated again in 2013-14, then we shall be overcoming the jinx of the sugar cycle.

Typically, it’s a five-year cycle of three consecutive good years of production followed by lean output in the following two years caused by diversion of land from cane to other crops as uncleared cane bills keep piling up with cash-strapped factories. “You will recall our food minister K V Thomas is committed to break this cycle, which has done considerable harm to the sugar economy, by enlisting the support of factories and farmers. No question that cane cultivation must at all times be a rewarding pursuit for farmers. The Rangarajan committee has recommended far-reaching reforms in the sugar sector, including total decontrol and factories sharing profits with cane growers,” says former ISMA president Om Dhanuka.

The world once again got a demonstration of how quickly New York raw futures and NYSE Liffe white sugar will change course with any adverse or favourable weather announcements for Brazil and India, the world’s two leading producers. Haven’t we seen raws driven close to 24 cents a pound in July end on crop concerns in the two countries. Now prices have weakened considerably on crop outlook improvement in Brazil and India.

According to Kingsman, the expectation of a comfortable global sugar surplus resulting too, from Chinese production rising 10.4 per cent to 13.82 mt and Russian output staying good once again moderating their import requirements during 2012-13 season will weaken prices. Kingsman has, however, cut global surplus projection by 1.4 mt to 6.7mt anticipating production at 177.3 mt and consumption at 170.6 mt. ISO, however, projects surplus rising 13 per cent to 5.9 mt from 5.2 mt. Rabobank too sees it going up by 600,000 tonnes to 5.2 mt tonnes. Take the median of all estimates, there is no getting away from a bearish spell.

Two outside chances of this spell being broken, however, remain.

ED&F Man says if the forecast rains return to Brazil’s centre south region forcing factories to leave cane in the fields, then bulls could have their play. Moreover, in the event of Brazil mandating that in blended gasoline the percentage of ethanol will have to be 25 per cent and not 20 per cent as now, then that could give a leg-up to sugar prices.

The failure of maize crop in the US in the wake of the worst drought since 1956 leading to over 20 per cent surge in corn prices has improved biofuel export prospects for Brazil.

Iron ore hit by weak Chinese demand, poor steel outlook

Tue Sep 25, 2012
* Iron ore drops despite firmer steel prices

* Price offers for imported cargoes to China down for 3rd day

* China iron ore inventory at over 97 mln tonnes last week
By Manolo Serapio Jr
SINGAPORE, Sept 25 (Reuters) - Sellers of imported iron ore cargoes to top buyer China cut prices for a third day on Tuesday as weak demand pushed the benchmark rate to a one-week low, as the near-term outlook for the steel market remained weak despite recent gains.

Price offers for iron ore from Australia, Brazil and India dropped by another $1-$2 per tonne, according to Beijing-based consultancy Umetal.

That followed a 2.5 percent fall in the benchmark 62-percent grade iron ore .IO62-CNI=SI to $103.70 per tonne on Monday, the weakest since Sept. 14, based on data from information provider Steel Index.

Iron ore has recovered from a near three-year low of $86.70 reached earlier this month, on hopes that China's approval of more than $150 billion worth of infrastructure projects would boost steel demand.

But the rebound has since been curtailed by signs end-user demand for steel in China, the world's biggest consumer and producer, remains weak despite a recent spike in steel prices.

"Inquiries are very limited. It looks like most mills are done with restocking ahead of the holidays," said an iron ore trader in Shanghai.

The Chinese usually restock raw materials ahead of long public holidays, including next week's National Day break, although many mills may have replenished enough at this point.

A Brazilian cargo of 65.14-percent grade iron ore was sold on Monday at $114.50 per tonne, down $2 from the previous sale of a similar grade, while a 63.6-percent grade Brazilian shipment was sold about a dollar lower at $105.10, traders said.

Iron ore stockpiles at major Chinese ports stood at 97.25 million tonnes at the end of last week SH-TOT-IRONINV, up half a percent from the week before, equivalent to about 1-1/2 months of China's imports.

The rebound in iron ore prices earlier this month had prodded some traders to snap up cargoes, hoping to recover from losses in the last two months following a market rout that sliced spot prices by more than a third.

But some have remained cautious, with China's steel demand staying sluggish.

"We have not bought cargoes for two months now because we are not sure about the future of the steel market. We don't want to take the risk of buying a cargo that can't be easily sold these days," said a shipping manager for an iron ore trading firm in Shanghai.

"The risk of losing money is bigger than earning a profit," he said, adding his company still has around 200,000 tonnes of unsold stocks at ports.

Shanghai rebar futures closed little changed at 3,547 yuan ($560) a tonne on Tuesday, after rising more than 1 percent during the session to 3,587 yuan. Spot Tangshan billet prices rose by 60 yuan per tonne on Monday.

"The demand on the ground for steel hasn't really changed, it's still weak. Some traders chase prices higher only to find out that actual physical demand is not as good as they thought," said the Shanghai trader.

  Shanghai rebar futures and iron ore indexes at 0705 GMT

  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3547     +4.00        +0.11
  PLATTS 62 PCT INDEX             104.25     -2.00        -1.88
  THE STEEL INDEX 62 PCT INDEX     103.7     -2.70        -2.54
  METAL BULLETIN INDEX             106.2     -2.06        -1.90

  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.3093 Chinese yuan)

(Editing by Chris Gallagher)

Iron ore output may dip 18% in FY13

Mahesh Kulkarni / Bangalore Sep 25, 2012,
Business Standard
The recent move by the Goa government to ban iron ore mining is likely to hit the production of the mineral in the country during the current financial year. The domestic production is likely to touch 140 million tonnes (mt) in 2012-13, an 18 per cent decline year-on-year. A similar production level was seen earlier during 2004-05. It had peaked in 2009-10 to 220 mt.

For the financial year ended March, the domestic production of iron ore was estimated at 170 mt, a decline of 20 per cent year-on-year. The country exported 60 mt in FY12, down 39 per cent year-on-year. The production is likely to be affected due to the ban and slower MoEF clearances. After Karnataka and Goa, the ban might be extended by other states as well, a Citi Research report said.

“We expect domestic steel production to grow at about eight per cent CAGR between FY05 and FY13 to 78 mt. Domestic ore should suffice to meet India’s requirements (about 125 mt). But exports could potentially decline from 60 mt in FY12 (35 per cent of total production) to less than 30 mt in FY13 if the mining ban in Goa stays,” analysts from Citi Research said.

The recent mining ban announced in Goa could wipe out about 30 mt from the seaborne market (about one billion tonnes), partly offset the impact of about 50 mt of new supply expected to come on-stream globally in second half of 2012 calendar year and provide near-term support to global prices.

India’s share in the seaborne market could decline from 13 per cent in FY10 to around 3 per cent in FY13. An increase thereafter would depend on the fate of the Goa mining industry.

The government of Goa suspended mining after the Shah Commission Report was tabled in Parliament on September 12. This was followed by the suspension of environment clearances for all 93 mining leases by the ministry of environment and forests. The ban in Goa follows a blanket ban imposed by the Supreme Court (SC) in Karnataka in August 2011.

It is unclear how long the process of obtaining fresh environment clearances is likely to take. If exports out of Goa are not resumed this year, India’s total exports in FY13 could drop to about 30 mt (12 mt in Q1FY13).

However, the suspension of mining operations will not affect trade and transportation of ore already mined and existing in the lease hold area, in transit or stocked at the port.

The SC had recently allowed resumption of mining in 18 Category A mines in Karnataka. Goa and Karnataka together accounted for about 36 per cent of India’s production and about 65 per cent of India’s exports prior to the ban.

The government of Odisha is also planning to e-auction iron ore from next year (as is being done in Karnataka) to bring more transparency. The state government has constituted a five-member panel headed by principal secretary of steel and mines department to work out the modalities.

India’s iron ore reserves are estimated at 7 billion tonnes. Most of India’s iron ore production (over 95 per cent) is in the states of Odisha, Karnataka, Chhattisgarh, Goa and Jharkhand. Public sector companies like NMDC and SAIL produce 25-30 per cent of India’s output. The balance is from the private sector including companies such as Tata Steel.

Iron ore fines account for 55-60 per cent of India’s iron ore production and the balance is in the form of lumps. The domestic industry consumes around 90 per cent of the lumps produced and a large proportion of fines are exported. Of the total iron ore produced (in FY10), about 25 per cent is greater than 65 per cent Fe grade, 46 per cent is between 62-65 per cent Fe and the balance 29 per cent less than 62 per cent.

Odisha to reserve future metal leases for Orissa Mining Corporation

25 SEP, 2012, ET BUREAU
NEW DELHI: The Odisha government has decided to reserve all future iron ore, bauxite, manganese and chromite leases for Orissa Mining Corporation, saying state-run enterprises are less likely to flout norms.

A resolution to this effect was passed by the state government recently.

"State PSUs are likely to be more compliant of regulatory laws, and could enter into long-term arrangements with downstream users," said Rajesh Verma, principal secretary in the state's steel and mines department.

An official in the mines ministry said the Centre's nod would be required to turn it into law.

If cleared, officials say, it would lead to all pending reconnaissance, prospecting and mining applications in the state being disposed off. Leases already recommended by the state will, however, will remain unaffected.

The state's recommendation for a prospecting licence to Posco that is under litigation will, if cleared by the courts, thus be spared.

The move comes at a time when authorities have started a nation-wide crackdown on illegalities and irregularities in mining.

Mineral-rich Odisha has attracted a lot of downstream steel and aluminium capacity. The state plays host to companies such as Tata Steel , Jindal Steel and Power, Vedanta, Bhushan Steel and Monnet Ispat, besides several smaller sponge-iron makers. Some of these manufacturers are in the process of setting up their plants in the state.

The state has been pushing for an increase in royalty rates, particularly for iron ore, from 10 % at present to at least 20%. Chief Minister Naveen Patnaik had written to the prime minister last year seeking a mineral resource rent tax at 50% of surplus rent, aimed at increasing the state's share of the high profits.

Orissa Mining Corp, the largest chrome producer, is being investigated by the Competition Commission for possible monopolistic pricing. It recently started e-auction of chrome for users in the state, such as Jindal Stainless and Visa.

The state has followed that with a move to sell all merchant iron ore through e-auctions, toeing the line adopted in Karnataka by the Supreme Court where a ban on mining led to a sudden supply crunch.

Verma said post reservation "long-term arrangements or raw material from OMC can be linked to market indices, and transparent mechanisms can always be incorporated".

Odisha is counting on a recent Supreme Court judgement in the matter of Monnet Ispat and Energy Ltd vs Union Of India and others".

No new ship orders this fiscal as cash-crunch bites: Shipping Corporation of India

24 SEP, 2012, PTI
MUMBAI: State-run Shipping Corporation of India (SCI) has earmarked Rs 2,500 crore to pay for the ships which it has already ordered, but will not place new orders given the bleak global situation, a top official said today.

"We have a capex (capital expenditure) plan of Rs 2,500 crore for our 21 vessels under order and will not be placing any new orders," SCI finance director B K Mandal told shareholders at its annual general meeting here.

SCI will fund the acquisition through debt, he added. Chairman S Hajara, who retires in December after eight-year term, said the cash-flow is under stress due to over-capacities in the sector globally, and hence the ship liner will not go for new orders.

He cited huge dips in charter charges (up to 95 per cent in some cases) in the period after 2008 crisis, to make the point that times are currently tough.

However, Hajara also added that assets are available at lowest prices right now, and this is an ideal time to invest in assets.

Commissioning of the new vessels is expected to take the total capacity of the company to 6 DWT by the end of FY13 and 7 DWT by the end of FY14, and also result in reduction in average age of the fleet to international standards, he said.

The supply-demand situation, which is lopsided towards supply right now, will reach a respectable equilibrium by mid 2013 after which there would be an increase in freight rates, Hajara said.

SCI had charted out a plan to acquire 45 vessels during the 11th Plan (2007-12), but has fallen short by 17 vessels, he said, attributing this to the global slowdown.

Hajara said there had been huge orders for assets globally in the period leading to 2007 as the rates were very conducive. However, the 2008 crisis changed all that and shipping companies were burdened with heavy orders, he said, adding that starting 2010, when the orders started getting delivered, there was a supply glut.

On the future of its joint venture with Iranian shipping company Irano Hind, Hajara said most probably the government will dissolve the company as a result of the difficulties SCI is witnessing in its regular operations due to the sanctions against Iranian entities.

"Irano Hind being under the UN, US and EU sanctions is in a difficult stage and even our other dealings with the commercial organisations, (like) European banks, is becoming problematic because of our exposure to Irano Hind. So we have taken up the matter with the government, and we expect the dissolution or whatever is the final decision, to be taken very shortly by the government," he said.

To take care of the piracy, SCI is contemplating armed private guards aboard its vessels passing through troubled waters of Middle East and Eastern African coasts and has also requested the government to train the CISF personnel so that they can be inducted on merchant ships, Hajara said.

Falls in capesize, panamax rates drag on Baltic index

Mon Sep 24, 2012
Sept 24 (Reuters) - The Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry commodities, fell on Monday  as rates for panamax and capesize vessels dropped.

The overall index, which reflects daily freight market prices for capesize, panamax, supramax and handysize dry bulk transport vessels, fell 0.26 percent to 772 points.

The panamax index fell 1.28 percent to 461 points, with average daily earnings down $45 to $3,674. Panamaxes typically transport 60,000-70,000 tonne cargos of coal or grains.

The Baltic's capesize index fell 0.38 percent to 1,578 points.

Average daily earnings for capesizes, which usually transport 150,000 tonne cargoes such as iron ore and coal, were down $45 to $7,619.

Spot iron ore prices in top consumer China fell on Monday, reflecting limited interest among steel mills in restocking the raw material ahead of next week's public holiday, given the uncertain outlook for steel demand.

Iron ore shipments account for around a third of seaborne volumes on the larger capesizes, and brokers said price developments remained a key factor for dry freight.

Average daily earnings for handysize ships were up $20 at $7,067 while those of supramax ships were down $1 at $8,858.

(Reporting by NR Sethuraman in Bangalore; Editing by Catherine Evans)

Bunker Prices : 25.09.2012

Source : Bunkerworld.com

	IFO380		IFO180		MDO		MGO
Singapore	660.00		674.00		972.00		982.00
Rotterdam	631.50		654.00		-		956.00
Houston	646.00		681.00		1,050.00		1,053.50
Fujairah	655.50		680.00		-		1,029.00
Los Angeles	681.00		723.00		1,095.00		1,052.50
Canary Islands	663.50		685.00		1,010.00		1,015.00
Busan	703.50		721.50		1,004.00		1,014.00
Genoa	652.00		681.00		-		1,014.00
Auckland	743.00		-		-		1,058.00
Montevideo	764.50		797.50		1,145.00		1,152.50
Valparaiso	734.00		809.50		-		1,205.00
Colombo	755.00		810.00		-		1,120.00
New York	643.50		716.50		-		1,041.00

Baltic Dry Indices 24/09/2012

BDI             772         -       2
BCI           1578         -       6
BPI             461         -       6
BSI             847         No Change
BHSI          486         +      2

Soy at lowest since mid-August on higher output estimate

Mon Sep 24, 2012
* Higher yields, slow Chinese demand weigh on soy

* U.S. soybeans fall 1.4 pct, below $16 a bushel

* Corn down 0.5 pct, wheat ticks down after rally

* Riskier assets fall, dollar up on growth concerns
By Naveen Thukral
SINGAPORE, Sept 24 (Reuters) - Chicago soybeans slid 1.4 percent on Monday, falling below $16 a bushel for the first time since mid-August, as latest private estimates of higher U.S. production and slowing demand from top consumer China dragged down prices.

Corn fell around half a percent while wheat edged lower, after last session's gains, as growing economic concerns pushed down commodities, including oil and metals.

Analytics firm Informa Economics raised estimates for U.S. corn and soybean production while farmers in South America also geared up for a large crop.

"Things were overbought and we are now a seeing a correction as historically these type of rallies end up in a selloff," said one Melbourne-based commodities analyst. "The market is looking at a larger South American crop, slowing Chinese demand and higher production estimates in the U.S."

The front-month Chicago Board of Trade soybeans climbed to a record top of $17.94-3/4 a bushel earlier this month, while corn jumped to an all-time high of $8.49 a bushel in August as the worst drought in half a century devastated crops across the U.S. grain belt.

On Monday, November soy slid 1.4 percent to $15.98-1/2 a bushel by 0328 GMT, after touching a low of $15.90-1/4 a bushel, its weakest since Aug. 14.

December corn lost 0.5 percent to $7.44-1/4 a bushel and December wheat fell 0.4 percent to $8.94 a bushel.

Grain prices came under further pressure from an overall weakness in other financial markets.

Riskier assets fell on Monday, dragging down Asian shares, copper and oil but the dollar strengthened as investors shifted their focus to weak economic fundamentals while monitoring progress in the euro zone debt bailout scheme.

The dollar index measured against a basket of key currencies rose 0.3 percent, weighing on commodities priced in the greenback like oil, copper and as well as gold.

BEARISH FUNDAMENTALS

Informa pegged U.S. 2012 corn production at 11.093 billion bushels compared with 10.727 billion bushels estimated by the USDA in its September crop report. For soybeans the firm forecast U.S. production at 2.663 billion bushels against 2.634 billion bushels estimated by the USDA.

A slowdown in edible oil consumption, which sent palm oil to a two-year low, is adding to the bearish sentiment in soybeans.

"Slowing European demand for biodiesel is a key headwind for prices," Luke Mathews, commodities strategist at the Commonwealth Bank of Australia, said in a report.

Palm oil prices will fall further this year as slowing economic growth reins in demand for biofuel production, leading to higher stocks at top producers Indonesia and Malaysia, an industry meeting concluded on Sunday.

Investors are turning their attention to soybean production in Brazil and Argentina.

Farmers in Brazil's grain belt jump-started planting after early showers set the scene for what is expected to be a bumper corn and record soy crop, producers and analysts said on Friday.

At the same time, China is likely to reduce soy purchases as it will carry on selling soybean reserves well into 2013 to contain food inflation and ease tight supplies.

The wheat market also came under pressure amid a broad-based weakness in the financial markets but losses were limited by expectations of export restrictions in Russia.

Wheat jumped 2 percent on Friday after Russia's economy minister, Andrei Belousov, said the country may curb grain exports if domestic prices continue to rise.

The economy minister's statement was, however, refuted by the nation's deputy farm minister over the weekend. Ilya Shestakov said that he was surprised by a sudden statement by Belousov that Russia could limit grain exports.

  Prices at 0328 GMT
  Contract        Last    Change  Pct chg  MA 30   RSI
  CBOT wheat     894.00    -3.25  -0.36%   890.14   60
  CBOT corn      744.25    -4.00  -0.53%   792.08   33
  CBOT soy      1598.50   -23.25  -1.43%  1696.65   28
  CBOT rice      $15.22   -$0.02  -0.13%   $15.38   60
  WTI crude      $92.15   -$0.74  -0.80%   $95.48   33
  Currencies                                               
  Euro/dlr       $1.295  -$0.003  -0.25% 
  USD/AUD         1.042   -0.004  -0.34% 
  Most active contracts
  Wheat, corn and soy US cents/bushel. Rice: USD per hundredweight
  RSI 14, exponential

(Editing by Himani Sarkar)

Corn sowings to hit 77-year top, soybeans a record

21st Sept 2012, by Agrimoney
US farmers raised corn and soybean sowings even further than officials have revealed, Informa Economics said – and forecast that seedings for next year's harvest will increase even further.

The influential analysis group pegged corn sowings for the ongoing harvest at 97.172m acres, up more than 750m acres on the current US Department of Agriculture estimate, and the highest since 1937.

Soybean plantings were 77.143m acres, Informa said, up nearly 1.1m acres from the USDA figure.

The revisions are based on analysis of data from growers' returns to the Farm Service Agency, which handles farm support payments, and which Agrimoney.com said on Monday suggested corn and soybean area was higher than had been thought.

Highest in 77 years

And Informa forecast a further increase in sowings next spring.

At 97.537m acres, corn sowings would be the highest since 1936, and above a figure of 96m acres forecast last month by fertilizer group CF Industries which was questioned as generous by many observers.

Soybean area, at 79.872m acres, would be a record.

Wheat plantings would rise too, by some 1.1m acres to 57.1m acres, although this figure is behind acreage rise expectations from some other observers, including broker Benson Quinn Commodities and Texas A&M University.

The increases would come in part at the expense of cotton, for which area will drop 2.3m acres to 10m acres.

Russia may curb grain exports after all

21st Sept 2012, by Agrimoney
Russia may impose grain export curbs after all to quell a rise in domestic prices of the grain, the country's economy minister said, as Russia's continued success in shipments continues to erode supplies.

Andrei Belousov, Russia's economy minister, said it was "quite possible" that the government, which two years ago banned shipments altogether after dryness devastated grains production, would restrict exports of this year's drought-hit crop.

The comments fostered a rise in prices of wheat, Russia's main grain export, which stood 2.0% higher at $8.97 a bushel in Chicago at 17:30 UK time (11:30 Chicago time), while gaining 0.9% in Paris.

And they appeared to put Mr Belusov on a collision course with Deputy Prime Minister Arkady Dvorkovich, who said at the end of August, after a meeting with farm ministers which eschewed trade curbs, that "we consider any export restrictions harmful.

"We will use the instruments we have - market interventions and information exchange with market participants.

"As long as I am in charge of this sector, I will be against any export restrictions."

Separately on Friday, Mr Dvorkovich said that Russia did not plan to impose export curbs.

Price implications

Mr Belusov said on Friday: "The issue of [a] grain exports ban is the issue of domestic grain prices dynamics.

"We are witnessing such a trend at the moment... With such a trend, it's quite possible, that the government will decide to restrict grain exports."

The government will discuss grain exports "this autumn".

Clashes within governments are not uncommon at times of rising grain prices, with agriculture ministers often seeking to protect the interests of farmers, for which high prices may offer compensation for a poor crop.

Meanwhile, economy ministers, attempting to keep a lid on inflation, often pursue action to depress food prices or, as in Ukraine last year, opportunities to raise revenues through export levies.

Rising prices

Prices of Grade 3 wheat stood at 8,450 roubles a tonne as of a week ago, up 28% on values at the start of June, before US, and then former Soviet Union, droughts sent world grain prices soaring.

The rises have been underpinned by weak inventories left over from last year's campaign, with inventories held by farmers starting August at their lowest in nine years.

The price of Grade 4 wheat, the typical export grade, was 8,425 roubles a tonne, a gain of 30% over the same period.

However, with values of foreign grain rising too, the increases, while cutting the discount of Russian wheat exports compared with rival supplies, has not eliminated it entirely, with the country on Wednesday winning a 150,000-tonne order from Iraq against international competition.

Traders flagged the higher price of some $377 a tonne, excluding freight, that Iraq appears to have paid, compared with the values of $320-350 a tonne paid by Egypt at tenders undertaken earlier, but also for November shipment.

The Iraq price "is going to provide some very tough competition in the interior" for any merchants which have yet to source grain for Egypt, Swiss-based analysis group Fryer said.

'Soon dry up'

Fryer analysts added, in comments made before Friday's announcement: "We now suspect that unless there is a clear mandate from the [Russian] government that allows sales into November," implying that any curbs might not be go live until late in the year.

Even so, it may be too late for buyers to source large quantities of the grain ahead of any curbs, with logistics at Russia's main Black Sea port already appearing tight, given the three ships bound for Iraq to load, besides 13 panamax cargos to Egypt in the October-to-November timeframe.

The fate of Russia's exports is being closely watched given that their decline will shift demand from importers to other origins, notably European and North American supplies.

At UK grain merchant Gleadell, trading manager Jonathan Lane said: "Black Sea wheat offers will soon dry up, Southern hemisphere wheat production is forecast 10m tonnes lower than last year, and a tighter EU surplus is seen replacing declining Black Sea exports."

Foodgrains production seen falling by 10%

Govt expected to release the first official estimate of 2012-13 crop marketing around noon today

Sanjeeb Mukherjee / New Delhi Sep 24, 2012
Business Standard
With the southwest monsoon having an uneven run in many parts of India this year, all eyes will be on its impact on kharif production in 2012-2013 as this will have direct bearing on how food prices move in the coming year.

The government is expected to release the first official estimate of 2012-2013 crop marketing around noon today. According to official sources, foodgrains production is estimated to fall by 10% in the kharif season this year to 117.19 million tonnes due to deficient monsoon and drought in some states.  

Last year, India produced a record 129.94 million tonnes of foodgrains during the kharif season. Output of rice, the biggest foodgrain sown during the kharif season is projected to fall by 6.5% to 85.56 million tonnes.

Production of pulses is estimated to fall by almost 1.5 million tonnes to around 5-5.5  million tonnes , while   while coarse cereals output is estimated to fall to a little over 26 million tonnes from 32.26 million tonnes. Experts said the biggest cause of concern would be the drop in output of pulses and oilseeds to some extent as their import dependency will increase.

India annually imports more than half of its edible oil demand, while import of pulses hovers between 1.5 to 2.o million tonnes. Kharif sowing, started in June, is almost complete and harvest will start from early next month.

The southwest monsoon which provides almost 70% of total moisture needed for the country has had a rather uneven run in 2012. From a shortfall of almost 20% during the first two months of the season, the rainfall at present is just 5% below normal.

The initial deficiency lead to drought-like conditions in Karnataka, Maharashtra, Gujarat and Rajasthan have declared drought in over 390 taluks.

Grain, oilseeds market rally could lead to rise in meat prices

OUR BUREAU, THE HINDU BUSINESS LINE
CHENNAI, SEPT. 23:
The currently rally in grain and oilseed prices could affect supply chains, especially the animal protein industry, resulting in rising meat prices.

Right now, food inflation is weather-driven in exporting nations, mainly resulting from the US facing its worst drought since 1936 and water shortages in Russia and South America, according to Rabobank.

RECORD HIGHS

With prices of agricultural commodities skyrocketing, it could result in “agflation” globally. As a result, food prices are likely to hit record highs next year.

The surge could well continue into the third quarter of next year. This would see feed-intensive crops coming under pressure resulting in repercussions for the animal protein and dairy industries, Rabobank said in a report.

Luke Chandler, Global Head of Agri Commodity Markets Research at Rabobank, said that this would lead to consumers, especially those in the lower strata, to switch over from animal protein to grains such as rice and wheat.

“These commodities are currently 30 per cent cheaper than their 2008 peaks. Nonetheless, price rises are likely to stall the long-term trend towards higher protein diets in Asia, West Asia and North Africa. In developed economies – especially the US and Europe – where meat and corn price elasticity is low, the knock-on effect of high grain prices will be felt for some time to come,” he said.

Grain shortage will be sustained since herds take a longer time to rebuild and also since the animal protein and dairy industries have long production cycles. This will result in pressure on food prices.

Since food makes up only a smaller portion of spending in emerging countries, the current period of “agflation” would not lead to unrest as was seen in 2008, Chandler said.

BETTER SUPPLY

The Food Price Index of the Food and Agricultural Organisation will increase by 15 per cent by the end of June next year. Prices will have to remain high to ensure demand is rationed and encourage better supply.

Rabobank says it expects prices of grains and oilseeds to rule higher for the next 12 months.

The situation could worsen on intervention by governments despite favourable macro-economic conditions, such as low growth, lower oils prices and a weak dollar, reducing the impact of higher food prices. Stockpiling and export bans are a distinct possibility during 2012/13 as governments seek to protect domestic consumers from increasing food prices.

Increased government intervention will encourage further increase in commodity and food prices in the global market, Rabobank said, adding that efforts to increase stockpiles will prove counterproductive at the global level.

This is because countries that are unable to pay higher prices could see greater food inflation soaring.

On top of these, global food stocks have not been replenished since 2008. This has left the market without buffer stocks to meet any adverse condition. Therefore, efforts by governments to rebuild stocks are likely to add to food prices and take supplies off the market at a time when they are most needed, the bank said.

Coalgate: SKS Ispat & Power, Bhushan Steel move court against de-allocation of coal mines

24 SEP, 2012, SARITA C SINGH, ET BUREAU
NEW DELHI: SKS Ispat & Power, linked to tourism minister Subodh Kant Sahai, and Bhushan Steel have challenged the de-allocation of their coal blocks in the Delhi High Court, even before they received any formal communication about cancellation.

Coal blocks were de-allocated after an inter-ministerial group (IMG) reviewed the progress of work in the blocks and recommended action after hearing the response of the companies that were issued notices.

Bhushan Steel was the first to approach the court, followed by SKS Ispat, according to government sources. "The court has asked both companies to wait for de-allocation letters from the coal ministry before filing cases," said a government official.

A senior coal ministry official said the government expects more companies to follow suit once de-allocation letters are issued to them. The government is likely to cancel the allocations of 13 coal blocks affecting 28 private companies, based on the IMG's recommendations.

The coal ministry has not yet decided on the procedure to re-allocate the 13 blocks, with 2,609 million tonnes (MT) of reserves, as it expects several companies to take legal action.

On September 15, the IMG had recommended cancellation of licences for the New Patrapara coal block in Odisha given to eight companies led by Bhushan Steel and the Rawanwara North block in Madhya Pradesh allocated to SKS Ispat & Power.

The IMG - headed by a coal ministry official and with members from the finance, law and power ministries - decided to cancel the two blocks with combined reserves of 1,200 MT citing non-achievement of milestones. The coal ministry had cancelled the blocks last Monday.

Bhushan Steel faced de-allocation as it did not commence coal production from the New Patrapara block given in 2006.

However, sources close to Bhushan Steel said the company has made heavy investments in operating its sponge iron project for which coal was being imported.

"The fact that the end-use project was operational was confirmed by the steel ministry but the IMG was of the view that the company did not make serious efforts in mining coal from a possible sub-block," said the coal ministry official.

As per terms of the allotment, Bhushan Steel was required to mine coal and transfer shares of other allottees through Mahanadi Coalfields.

In its recent show cause notice, the coal ministry had said that important milestones such as forest clearance, mining lease and land acquisition were pending for the New Patrapara block since there were issues among the block owners.

According to the IMG, SKS Ispat - that was in the news for its connection with tourism minister Sahai's brother - invested just 55 crore in purchasing geological reports from Coal India's technical arm Central Mine Planning & Design Institute (CMPDIL).

The IMG facts are based on presentations made by companies on progress of the blocks and their associated projects. Sources close to the company said it claims to have invested about Rs 1,400 crore in an associated sponge iron plant in Raipur, Chhattisgarh that is reportedly operational.

Iron ore prices under pressure, China restocking seen limited

Mon Sep 24, 2012
* Iron ore fell for third day to $106.40/T on Friday

* Sellers cut iron ore price offers as market turns weak again
By Manolo Serapio Jr
SINGAPORE, Sept 24 (Reuters) - Spot iron ore prices in top consumer China fell on Monday, reflecting limited interest among steel mills in restocking the raw material ahead of next week's public holiday given the uncertain outlook for steel demand.

Price offers for imported iron ore cargoes in China dropped between $2-$4 a tonne, traders said, after the benchmark rate slid by more than 2 percent on Friday in line with weaker Chinese steel prices.

Iron ore with 62 percent iron content .IO62-CNI=SI, the industry benchmark, dropped 2.5 percent to $106.40 a tonne on Friday, declining for a third session running, based on data from price provider Steel Index.

"The market has become soft again and traders have also slowed down amid lots of uncertainty about the outlook," said a Shanghai-based iron ore trader.

Iron ore has rebounded from a near three-year low of $86.70 reached earlier this month, on hopes that China's approval of more than $150 billion worth of infrastructure projects would boost steel demand.

But the recovery has been unconvincing so far, with prices facing resistance past $100, amid signs end-user demand for steel remains weak despite a recent spike in steel prices.

The Chinese usually restock raw materials ahead of long public holidays, including next week's National Day break. But many mills may have replenished enough at this point.

"Most of the restocking activity's already occurred, so you'd probably see Chinese physical traders dipping out of the market," said Mark Pervan, global head of commodity research at ANZ.

Stockpiles of iron ore among small Chinese steel mills showed a stabilisation of levels over the past fortnight, investment bank Macquarie said, citing data from industry consultancy Mysteel.

The inventory now sits at 17.3 days worth of consumption, rising slightly from 17 days as of Sept. 7, Macquarie said, although still much smaller than the 27-30 days over the past year.

Weaker steel demand and wild swings in iron ore prices had prompted Chinese producers to keep smaller inventories of iron ore this year.

"Iron ore prices are likely to fall further before the holiday and I don't expect any turnaround in the near future," said a trader in China's eastern Shandong province.

Shanghai rebar futures rebounded nearly 2 percent to close at 3,543 yuan ($560) per tonne on Monday after falling to one-week lows in the previous session, although traders said the gains are unlikely to be sustained unless end-user demand recovers strongly.

  Shanghai rebar futures and iron ore indexes at 0701 GMT

  Contract                          Last    Change   Pct Change
  SHFE REBAR JAN3                   3543    +66.00        +1.90
  PLATTS 62 PCT INDEX             106.25     -3.50        -3.19
  THE STEEL INDEX 62 PCT INDEX     106.4     -2.70        -2.47
  METAL BULLETIN INDEX            108.26     -2.70        -2.43

  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
  ($1 = 6.3053 Chinese yuan)

(Additional reporting by Ruby Lian in Shanghai; Editing by Joseph Radford and Miral Fahmy)

Aussie Debacle Flags China Hard Landing as Iron Market Melts

By Anchalee Worrachate and Monami Yui - Sep 24, 2012
Bloomberg
From the end of 2008 through July, no major currency appreciated as much as Australia’s dollar, thanks to booming shipments of iron ore and other commodities to China. Since then, it’s the worst performer as the engine of world growth slows.

The so-called Aussie depreciated 1.5 percent in the past month, the second-biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Traders are betting Australia’s central bank will cut interest rates to boost growth, dragging down the currency even though the Standard & Poor’s GSCI Index of commodities has risen almost 20 percent from its low this year in June.

This reversal shows the dangers for an economy tied too closely to another. China, which buys 28 percent of Australia’s exports, said industrial output grew at the slowest pace in three years last month as Europe’s debt crisis cut sales of Chinese goods. Polls show Prime Minister Julia Gillard’s governing Labor Party is under pressure before elections due next year.

“The Australian dollar is very expensive from whichever metrics you look at,” Dagmar Dvorak, a director of fixed-income and currencies in London at Baring Asset Management, which oversees $50 billion, said in an interview on Sept. 20. “When a currency overvaluation is that extreme, you have to question what could be a trigger that stops it. For the Aussie, it’s the economic slowdown in China and falling commodity prices. The currency looks vulnerable.”

Rebound Curtailed

Baring has joined Credit Suisse Asset Management and Quantum Global Investment Management as onetime bulls turned bearish. The Australian dollar was 39 percent overvalued against its U.S. counterpart on Sept. 20 as measured by the Organization for Economic Cooperation and Development. That’s more than other currencies that tend to rise and fall with commodity prices, such as those of New Zealand and Canada.

The Aussie appreciated to its highest level against the U.S. dollar in about six months on Sept. 14, after the Federal Reserve announced a third round of bond buying designed to boost growth and reduce unemployment. The gain was short-lived, and the currency has since weakened against 12 of its 16 major counterparts.

Australia’s currency fell 0.9 percent last week as a report on Sept. 20 showed China’s manufacturing may contract for an 11th-straight month and an International Monetary Fund official said the same day it would cut its forecasts for global economic expansion. The Aussie was at $1.0430 as of 12:44 p.m. in Tokyo today, 0.3 percent lower than the close on Sept. 21.

Resource Boom

“We are worried about Chinese growth and think the short- term risk for Australian dollar is a bit too high for us,” Gareth Fielding, the chief executive officer at Quantum Global Investment Management in Zug, Switzerland, said on Sept. 17. “The rally has come a long way. We are a buyer if it falls below parity with the dollar.”

Australia’s economy was bolstered by the biggest resources bonanza since a gold rush in the 1850s as Chinese-led demand for iron ore, coal and natural gas surged in part because of Beijing’s 4 trillion yuan ($635 billion) stimulus package in 2008. Iron ore from Australia went into everything from skyscrapers in Shanghai to a shipyard in Dalian.

The Aussie rode the boom, advancing 48 percent against the dollar since Dec. 31, 2008, and 60 percent versus the euro. Exports to China more than doubled to A$71.5 billion ($74.5 billion) last year from A$32.3 billion in 2008, according to data from the Department of Foreign Affairs and Trade.

Most Expensive

This rally made the Australian currency the most expensive among developed-nation currencies, based on the relative costs of goods and services as measured by the Paris-based OECD. The Canadian loonie and the New Zealand kiwi were each 21 percent overvalued versus the dollar using the same measure.

It also made it attractive to as many as 23 central banks from Brazil to Russia, according to data provided by the Reserve Bank of Australia under a Freedom of Information Act request by Bloomberg News. The share of global foreign-exchange reserves dominated in “other currencies,” which strategists said includes Australia’s dollar, rose to 5.2 percent in the first quarter, from 2 percent in 2007, according to the IMF.

“We suspect that there will be very heavy buyers of Aussie” over the long term, Todd Elmer, a currency strategist at Citigroup Inc. in Singapore, said in a phone interview on Sept. 11. “It makes enormous sense as a currency, in part because of commodities, in part because of higher returns, in part because of Australia’s more stable fiscal positions, than most major economies.”

Iron Woes

RBA Governor Glenn Stevens predicted last month that the resource boom has at least another year to run before it begins to ease. Business investment accounted for about 17 percent of Australia’s gross domestic product in the first half of 2012 and is forecast to increase further in the next year, driven by mining projects, according to an RBA report.

Investors are showing concern that Australia’s economy may slow after the price of iron ore, which made up more than 20 percent of exports last year, dropped as much as 37 percent this year to the lowest level since October 2009.

Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest producer, cut its spending plans by 26 percent as iron-ore prices declined. BHP Billiton Ltd (BHP), the world’s largest miner, delayed work at the Olympic Dam copper-uranium-gold project in South Australia last month, joining companies including Xstrata Plc and Rio Tinto Group in scaling back expansion.

China Slows

“For Australia, the best news is behind us,” Adrian Owens, a money manager at GAM in London, said in a phone interview on Sept. 19. “China is struggling. In the short run, there’s been a few minor tweaks in terms of stimulus but that may not reverse a trend of slower growth.”

GAM, a unit of GAM Holding AG with $48 billion under management, is buying the Mexican peso, Owens said.

Barclays Plc, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG forecast growth of 7.5 percent for China this year, the weakest since 1990. Pacific Investment Management Co. (PTTRX), which runs the world’s biggest bond fund, predicts a slowdown to 6.5 percent to 7 percent in the next 12 months.

China’s net exports and investment have “reached their limits,” Ramin Toloui, Pimco’s co-head of emerging markets portfolio management in Singapore, said in a Sept. 13 e-mail.

Australia’s economy grew 0.6 percent in the second quarter from the prior three months, according to a Bureau of Statistics report on Sept. 5, slower than the median estimate of economists for a 0.7 percent gain. Home-loan approvals unexpectedly fell in July by the most in five months.

‘Stretched’ Valuation

“We are cautious” at these price levels for Australia’s dollar, Stefan Keitel, Credit Suisse Asset Management’s global chief investment officer, said in a Sept. 3 phone interview.

The firm has sold Australian government bonds and is waiting for a “better entry level” as the currency’s valuation is “stretched” after a prolonged rally, he said.

The Aussie is trading about 30 cents higher than its average since exchange controls were scrapped in 1983. The RBA said Sept. 18 that it saw the strength of the local currency and slowing growth in China as risks to the domestic economy, signaling scope to cut interest rates.

After lowering the benchmark overnight cash-rate target by a total of 1.25 percentage points from October in an effort to boost growth, Stevens and his board left it at 3.5 percent for the past three meetings since June.

Rate Outlook

Traders see about an 84 percent chance policy makers will cut the benchmark cash rate by 25 basis points on Oct. 2, and a 97.6 percent likelihood of a reduction by year-end, interest- rate swaps show. Lower borrowing costs may make the currency less attractive to investors as they reduce returns on fixed- income assets.

“We’ve been seeing mining companies pulling back capital expenditure and iron-ore prices are still much lower than last year’s highs,” Mansoor Mohi-uddin, the global head of currency strategy at UBS AG in Singapore, said on Sept. 19. “The currency could definitely go below parity if the markets get more concerned about further easing.”

Gillard, the country’s first female prime minister, has seen her party’s poll ratings trail the opposition since after Australia’s 2010 election. She has pledged spending cuts and increased taxes to return the nation’s budget to surplus after four years of deficits.

‘Pillar’ Crumbles

The budget-surplus plan will reduce public spending and curb growth, Yoshisada Ishide, who oversees $14 billion at Daiwa SB Investments Ltd. in Tokyo, said in a telephone interview on Sept. 13. Ishide manages the biggest mutual fund focused on Australian dollar-denominated debt.

“The resource sector is one of the major pillars of Australia’s economy, and markets are cautious that demand for commodity exports will slow more evidently, which is negative for the economy,” Ishide said. He forecasts the currency will finish 2012 at parity to the U.S. dollar.

Standard Chartered Plc revised down its end-2013 forecast for the Australian dollar on Sept. 4, after having been jointly the second-most bullish forecaster in a Bloomberg survey of analysts as of July 1. It now predicts the Aussie will fall to 95 U.S. cents by the end of 2013 from a previous projection of $1.07.

“The Australian economy and its currency look vulnerable because of its exposure to China,” Peter Redward, a principal of Auckland, New Zealand-based Redward Associates Ltd. and former head of emerging-markets currency strategy at Deutsche Bank AG, said in an interview on Sept. 13. “We have yet to see the full impact on export values from the sharp fall in coal and iron ore prices. When it hits, the economy will slow, the central bank will cut rates and the Australian dollar will fall.”