\n– High-grade thermal coal price rises, possibly due to action by suppliers
\n– Over-enthusiasm for lithium draws in new producers, threatens price crash
\n– Alumina prices bounce back as producers cut back output<\/strong><\/p>\n<\/p>\n
By Nicki Bourlioufas<\/p>\n
China’s environment policy boosts high-grade iron ore price<\/u><\/p>\n
China’s anti-pollution push has driven a wedge between prices for high-grade and low-grade iron ore<\/strong>, with penalties increasing on impurities such as alumina, silica and phosphorus. The impetus is coming from China’s crackdown on illegal, polluting, outdated and small blast furnaces, which results in greater utilisation and better profitability of more modern and compliant steel mills.<\/p>\n Commonwealth Bank reports that the premium paid for high-grade ore with 65% Fe (iron content) over mid-grade ore with 62% Fe grew from 5% in mid-March to nearly 45% in late July, for an average of 15% across the four months. Iron ore with 62% Fe closed at US$66.95 a tonne on July 30.<\/p>\n CBA says: “While we expect that premium to pull back slightly from current levels, we believe the broad preference for higher grade ore is a structural change in the market.”<\/strong><\/p>\n Citi says that back in the first half of 2016, the combined BHP Newman Fine penalties for alumina, silica and phosphorus were about US$0.40 per tonne, but this has exploded tenfold to about US$4 per tonne now. The biggest impact has been alumina penalties that are about US$8 for every 1% over 2.25%.<\/p>\n The penalty on silica content peaked at about US$4 per tonne, but is now back at US$0.20 per tonne. Rio Tinto’s Robe River products have relatively high levels of these impurities and are being discounted as a result, Citi says.<\/p>\n Thermal coal won’t maintain its pricing high<\/u><\/p>\n A similar story is being played out in the market for thermal coals<\/strong>, amongst which prices for high-energy coal are booming. Credit Suisse notes Newcastle 6000kc coal is the price leader, having touched US$120 per tonne, and its premium to high-ash 5500kc coal at Newcastle has widened to an unprecedented 70%.<\/p>\n The two coal grades have different markets – high-ash coal is sold to China and reflects China spot prices whereas high-energy coal is sold to Japan, Korea and Taiwan, particularly Japan. Japanese power stations are designed to run on higher energy coals so they can't readily switch to cheaper, lower energy coal.<\/p>\n Newcastle 6000kc coal is trading at US$117 per tonne, but Credit Suisse suggests it won’t stay at this level for long given that Japanese power utilities have indicated they are ready to discuss a contract price in the low US$90s. But the investment bank also notes that the current price rise followed the sale of Rio Tinto's NSW coal assets to existing players Glencore and Yancoal.<\/p>\n “We suspect a lot of the price rise may reflect more concentrated supply providing pricing power.<\/strong>”<\/strong><\/p>\n Lithium headed for oversupply despite growing demand<\/u><\/p>\n Lithium is “sleep walking into a tsunami of oversupply<\/strong>” according to Macquarie. The analysts predict a steep fall from today’s price of about US$16,000 per tonne to about US$7,000 per tonne by mid-2019.<\/p>\n Growth in demand for lithium is still expected to exhibit a compound annual growth rate of 14% through to 2022 (27% in the battery sector alone) and some new faces are going to be needed as the Electric Vehicle revolution gathers pace, Macquarie says.<\/p>\n Just three years ago, four miners – Allbemarle, the world's largest lithium producer, SQM, the world’s second-largest producer of the metal, Tianqi and FMC – were responsible for more than 90% of output, but in 2018 they will produce about half of world output. Most of the new miners are Australian.<\/p>\n “The persistent enthusiasm among producers means that we will have to see some price brutality to thoroughly douse the project fervor,” Macquarie says. “Competition for survival is likely to become fierce quite soon.”<\/p>\n Credit Suisse notes that even the big players are on a roll, which will keep downward pressure on the lithium price.<\/p>\n SQM has begun the process of seeking government approval for a US$450m expansion of its lithium carbonate plant in Chile, which could more than double its production. Meanwhile, Tianqi Lithium Corp’s board has approved the planned expansion of lithium production at the Greenbushes mine in Western Australia, the world's largest hard rock lithium mine.<\/p>\n Alumina market tightens as producers cut output<\/u><\/p>\n Credit Suisse notes the Australia alumina price was back at US$530 per tonne by the first day of August, after bouncing off US$440 per tonne at the end of June. The price was lifted by ongoing supply tightness, which the analysts predict will continue.<\/p>\n “We expect demand to strengthen and tighten the market further<\/strong>,” Credit Suisse says. “China aluminium smelters traditionally restock ahead of winter in 4Q, delivering the highest prices of the year.”<\/p>\n News in July of further alumina production cuts lifted the price. Output dropped at Alpart refinery in Jamaica due to technical issues and led to scheduled shipment delays for August.<\/p>\n In Brazil, Alunorte remains curtailed by 50% and Norsk Hydro said the earliest time it could hope for a full restart would be October, otherwise it could be next year. The refinery was considering shutting down some lines, which would lower costs, but make any restart slower.<\/p>\n<\/p>\n![](\"https:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/Mining\/mining%20truck%20on%20road.jpg\")
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