Unfortunately we couldn’t find a chart for iron ore today. And we didn’t dare ask anyone at BHP Billiton whether they had one handy. But we did manage to get our hands on a chart from the London Metal Exchange (LME) for the price of Steel Billet.
The LME has only been quoting prices for steel since the middle of this year so the historical data is limited. However, if we can use the Steel price as a proxy for the price of iron ore we can see that it is enough to make Marius Kloppers choke on his biltong.
The Weekend Australian reported that BHP Billiton expects $920m in iron ore losses. Oops! This puts it in the same boat as Rio Tinto [ASX: RIO] and Brazil’s CVRD.
The Dow Jones Newswire service gained confirmation from BHP that it has been in talks with Chinese steel mills “over the possible deferral of some contracted iron ore shipments.” Despite this troubling news the company was at pains to point out that this would have no impact on production levels.
Back to the Weekend Australian report, the paper spoke to BHP’s chief commercial officer Alberto Calderon. We are glad it wasn’t us speaking to Mr. Calderon, because based on his comments in the article he sounds a sensitive on the issue.
He told the paper, “I am adamant you don’t cut production – there’s no reason for a low-cost producer to cut, and this has nothing to do with the EU.” Alright, alright, we believe you.
He went on, “If you make money and you are investing a lot of capital, you don’t subsidise high marginal-cost producers, who you see in China dramatically reducing (output) right now.”
This development in the iron ore market comes only two weeks after Mount Gibson Iron [ASX: MGX] had to sign new offtake agreements with two Chinese firms after three of its customers had defaulted on agreements. Shares in Mt Gibson Iron have slumped from about $1.50 in early October to 32 cents at the close on Friday.
And as for the company which until a few months ago had a larger market capitalization than ANZ Bank [ASX: ANZ], Fortescue Metals [ASX: FMG] has had to deny rumours the China Investment Corp (CIC) is interested in a minority stake in the company.
The market cap of Fortescue now sits at just $5.3 billion, well below the $30 billion it reached during the middle of this year, when CEO Andrew Forrest briefly became Australia’s richest man.
Now a minority stake of say 10% in Fortescue is only likely to set CIC back around $500-600 million. A drop in the ocean for the sovereign wealth fund that holds over $200 billion worth of investments.
The Last of a Dying Breed
Tomorrow Macquarie Group [ASX: MQG] releases its interim profit results. But it doesn’t look as though it will be the usual love-in for Macquarie, its staff, and the analysts that cover it.
Gone are the days when the bank was lovingly (not quite) referred to as the Millionaires Factory. Now the only millions that the market is interested in are the millions that have gone down the toilet in its funds. And more importantly for many, what impact this will have on Macquarie Group itself.
Last week Macquarie shares closed at a 5-year low of $22.73. That is around a 77% fall since the middle of last year. But at least it has fared much, much better than the upstart Macquarie wannabes.
The only one left worth mentioning is Babcock & Brown [ASX: BNB] which has sunk to its own woefully low levels. Last week it closed at its lowest ever level of 48 cents.
Macquarie still has quite some way to go before it gets as low as that. But it is very close to a key support level at $20 per share. After that, from a technical perspective, you’re looking at potential drop below $15. We’ve asked the Swarm Trading Gabriel Andre if he can take a proper technical look at Macquarie Group in tomorrow’s Money Morning.
We can only sympathise with the executives at Macquarie who face a tough uphill battle to get their executive options back in the money. Those issued in 2006 and 2007 have exercise prices at $61.79 and $71.41 respectively. And they only have a five year time frame to exercise them before they expire worthless.
Even options issued to executives this year will most likely not turn into the bonanza they once were, when the share price traded between $40-$50.
Which brings us to another final point on Macquarie. It’s probably about time they updated the chart on the shareholder section of the website. The last chart they have is for December 2007 showing a mightily impressive return compared to the All Ordinaries.
However, it may not be quite so impressive if they were to do the comparison now.
Maybe they will leave the old chart there for a while longer.
Cheers.
Kris.