Morning Mumble: Mundane Iron Ore, Spot Supply (A Hedgies heyday!), Oxus (no news) & Woodstock & could Atlas be a buy!

Good Morning, 

The analysts and reporters are of the opinion stockpiles at ports are 'yet again' too low and there's a sudden need for restocking. One would be wise to consider how China have managed their supplies, rather than the inaccuracies that are cited. With spot supply in limited demand, China are a lot better at managing their orders than what the markets are giving credit for. 

The steelhome china iron ore total ports inventory reports a circa 84Mts at ports. This should perhaps be considered within the normal range, with slowing demand. Remembering it’s a float for the steel economy and should run between 5 and 7 weeks of total demand. Admittedly yesterday's figures suggest it’s dropped below 5 weeks demand. There's a simple explanation for the spike, one that was pointed out awhile back, that being the hedgies have realised that a lot of commodities have limited physical spot supply. 

China has the additional woes for short supply, not only a reduced number of smaller privately owned iron ore operators coming back online post their winter break in the north. The supplies that would have naturally be replenished by internal production are now being sourced on the market via spot supply (the spike). Amazingly some state owned mines with costs at $70/t+ have been refused permission to close and source on the international market. The Chinese government may feel security of supply is required, in addition to contracts with steel mills and avoiding a massive spike in unemployment. 

The Chinese of course may do something about their northern mines (perhaps 'development' Grants) to avoid a growing discontent within the entire mining sector. With proposals being considered for subsidies in hardest hit coal and iron ore operators to at least maintain a 'sort of production.' (Direct quote from a Chinese iron ore trader there! 

Thankfully it’s made it very easy to make some decent gains in weeks rather than months, with spot prices moving 8.5% in 6 trading days at circa $62.5-63.10/t. There's a risk of limited upside so expect those able to supply the demand to take some healthy profits! 

With Xinchuang Li, (president of China Metallurgical Industry Planning and Research Institute, & Deputy Secretary General, China Iron and Steel Association), believes the range will be $55-65/t, implying that the peak seen on Weds/Thurs of $63/t+0.9% is towards the top of the Chinese industry consensus (read as wanting acceptable price). One would be wise to have a confirmed change in direction before speculating. 

The hope factors are reliant on the Chinese government increasing spending in "infrastructure" projects to motivate the economy. This may be a little optimistic with a shift from manufacturing, property (commercial and residential) and infrastructure towards service-based industries. Remembering of course the long-term averages (4-5 years) for iron ore stocks at ports is a smidge under 90mts it’s not the panic some would have you think it is. One could argue its almost like the Chinese are fracturing the market!

The positive is Atlas Iron is back in production, even coming out with resources upgrades, a modest "non-cash impairment charge on assets, a royalty relief period and a deal on costs including capital raising. It’s almost as though Atlas is an entirely different company! With mining restarting and Mt Webber likely to help reduce operating costs further. Post reorganisation, it could almost be worth a punt! 

With gossip about Fortescue Metals Group (FMG) in Australia, could they have a very sizeable Chinese partner at operating level or a take-out; surely Baosteel have been approved for 43B RMB overseas investment (imply 25% upside if there was a take-out on FMG). With limited competition in the market for such assets don't get too over-expectant about the price of a deal, or any deal for that matter, so being without intelligence it was rude not to speculate on the stock! 

Oxus Plc (OXS) final results in summary they cannot tell us (shareholders) anything, they remain confident "of fair compensation" for their claim, and they've put in a facility just in case it continues for a longer period of time. Quite what the panel have been doing since May 2014 is anyone's guess. With clarity on the actions of the Uzbekistan Government, it’s not difficult to assess the quantum surely! Even as a range, perhaps one would be wise to consider there's some 'behind' the scenes discussions or cattle trading is going on that 'may' have delayed the outcome! 

Having not "bothered" much with Minco (MIO) for some time (EMC: July 2014) the Q1 Results aren't really anything to get too excited about. The currency gains should have been expected and the cash on hand and value of investments is a plus for those calculator investors and giving appreciation to the SP today. 

What the market should consider is the possibly development of Woodstock being considered by a Chinese entity, with some "potential" upside. Supported in part by cash MIO has potential prospects at long last. After near a year with little price movement, the 'tide just could have turned for MIO" if they can complete on a deal. It would be an astute move by Hongxin Group in terms of a currency hedged producer outside of the Hubei province. With a deal last year in the Ukraine, it’s not beyond reason that a Canadian project could have strategic importance. 

Atb Fraser