Bottom reached for coal, iron ore? – by Oliver Probert (Australian Journal of Mining – August 07, 2014)

An ANZ commodities expert says iron ore and coking coal prices may have reached their bottom, and he’s singing from the same hymnbook as at least one mining executive.

A report from Mark Pervan, global head of commodity strategy for ANZ, this week said that with the stabilisation of the overall macro environment, commodity markets are entering the second half of 2014 on a positive note.

While an increase in commodity prices is likely to occur, the report says, it will be a modest one, however.

“Overall, the backdrop looks accommodating for commodity markets in H2 2014,” Pervan’s report states. “But the upside looks limited over the next month or two until we see this supported by a pick-up in physical demand, which is expected later in the year.”

Commenting specifically on mined bulk commodities, Pervan wrote: “Supply-side issues remain, but the bottom appears to have passed for coking coal and iron ore. Seasonal drops in power demand will cap any thermal recovery.”

Pervan’s confidence in iron ore was echoed by Atlas Iron chief executive Ken Brinsden, who was referenced in a number of mainstream media outlets for his comments at the Diggers & Dealers conference in WA this week.

Brinsden, who spoke at the conference, said Atlas’ undeveloped iron ore holdings in the Pilbara are undervalued by the market, and that a bleak outlook on iron ore was short sighted.

He reportedly said that Baosteel and Aurizon’s recent acquisition of Aquila Resources, along with its WA iron ore venture, for $1.42bn, was a vote of confidence in the future of iron ore in the Pilbara.

“It implies that Baosteel has paid $500m for half of a 30mtpa undeveloped iron ore project that still has five or six billion dollars worth of infrastructure investment ahead of it,” he was quoted by the AFR.

“Look at that valuation and it’s not hard to work out how cheap Atlas is in comparison for our undeveloped projects. It is an interesting precedent for undeveloped asset value for iron or projects in the Pilbara.”

Brinsden reportedly agreed that the bottom of the iron ore market had been reached.

“The great big rush of supply – that was the bit that was damaging to markets – has started to displace other sources of supply,” he was quoted.

“Is it possible that you get some volatility that sees the iron ore price go down to $US80 a tonne? Yes, but it won’t stay there because there is too much supply that gets knocked out of the market at those sorts of prices.”

Iron ore price closed overnight at US$95.50 a tonne.

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