Iron ore prices in Asia pushed higher on Monday as strong global steel demand buoyed sentiment, and as Chinese steel mills continued to ramp up output despite the government’s scrutiny of their compliance with stricter anti-pollution rules.
A STOCK STRATEGIST INDUSTRY REPORTS by Mathew Hodge
Near-term tightness in the iron ore market has persisted and intensified, with several developments in Brazil further restricting Vale’s (VALE)supply and Cyclone Veronica off Australia interrupting Pilbara shipments. We’ve factored in a reduction of another 20 million tonnes in Vale’s output in 2019 and 10 million tonnes in 2020. We now expect Vale to produce 350 million tonnes in 2019 and 370 million tonnes in 2020, down from an estimated 390 million tonnes in 2018. For Rio Tinto (RIO), BHP (BHP), and Fortescue, we’ve lowered our forecasts by 10 million tonnes in total for 2019 due to the cyclone. The estimated 30 million tonnes of lost supply from Vale and the Pilbara in 2019 is a more than 1% reduction to the seaborne iron ore market.
Disruptions mean that higher-cost iron ore is needed to balance the market, such as from domestic mines in China. The iron ore price has averaged $83 per tonne year to date, well ahead of our prior $65 per tonne forecast for 2019. Accordingly, we are raising our near-term iron ore forecasts to $73 in 2019, $60 in 2020, and $50 per tonne in 2021. Our prior forecasts were $65 in 2019, $55 in 2020, and $40 per tonne in 2021. Our unchanged $40 per tonne long-term forecast now starts a year later, in 2022.
Persimmon Homes plc PSN proclaims that 
BHP Billiton plc BLT 
Wood Group (John) plc WG enjoyed strong organic growth during its first half to the end of June, with revenue rising by 13.4% and the operating profit rising from $72m to $125. However last years first half profit of $6m. was turned into a loss of $52m due to 
Angling Direct plc ANG trading in the six months to the 31st July was extremely positive and ahead of management expectations, with a rise of 56%. On a like for like basis sales rose by 4.2%
Tracsis TRCS 
Reckitt Benckiser RB Rarely has a board been so isolated from reality that it shows not the slightest comprehension of the fear which its own chosen headlines for its third quarter update, could instill in shareholders. Those headlines speak of a continuing challenging environment and then worse still, an admission that the company needs reorganising for growth. So what exactly have the directors and senior management been doing recently to earn their remuneration. How can they have let things get so out of hand that they are forced to admit that the company is so badly organised it is incapable of growth.
BHP Billiton BHP updates that its first quarter performance leaves it on track for 7% volume growth in the current financial year but the figures are somewhat patchy. Petroleum and gas production declined compared to the same quarter last year, as did iron ore and coal. Copper was the only bright spot with a rise of 14%. However there are four major projects under development one of which involves investment of $2.5 billion.
Softcat SCT announces another very strong year with double digit growth in both gross and operating profit. Revenue for the year to 31st July rose by 23.8% and operating profit by 18.9%. The final dividend is to be increased by 69.4% and a special dividend of 13.5p per share, down 15% on last year, is also to be paid, making a total dividend increase for the year of 15%. The company has now produced 48 consecutive quarters of top and bottom line year on years growth.
Eckoh ECK has been trading strongly in the UK during the half year to the 30th September, whilst in the US where it only entered the market in 2014 it also appears to be going from strength to strength, having won a total of 30 contracts since then. Good progress is being made in converting its contracts pipeline into orders and new contracts awarded in the first half, have equaled those awarded in the whole of the last financial. year
BHP Billiton BHP benefited in 2017 from a substantial reduction in exceptional losses which fell from $6.4b in 2016 to $842m. as the Samarco dam failure in Brazil weighed less heavily on the company. The year to the 30th June turned out to be a very strong financial year with free cash flow at $12.b., the second highest on record and net debt down by 37%. On an underlying basis, EBITDA rise by 64%, basic earnings per share by 455% and attributable profit multiplied from $1.2b to $6.7b. Having laid the foundations over the past five years to improve return on capital and grow shareholder value, the momentum will continue into 2018 with volume growth of 7% expected, as well as further productivity gains.
Wood Group (John) plc WG had a mix of both robust and weaker performances across its businesses in the 6 months to the 30th June. Total revenue declined by 11% but profit was down by 86% and basic earnings per share by 89.0%. The interim dividend is increased cautiously by 3%.
Empresario Group EMR produced a record first half performance with revenue rising by 50% at constant exchange rates and adjusted profit before tax up by 24% or 12% at constant exchange rates. The company has successfully integrated its two acquisitions into the business and see them both offering further opportunities for growth.
Sareum Holdings SAR expects that profit for the year to 30th June and cash at the bank will be ahead of market expectation.
Proactis Holdings plc PHD expects to see a 31% rise in revenue for the year to 31st July, with EBITDA up 43% and profit before tax rising from 3.1m to 5.3m
Quantum Pharma plc QP Revenue for the half year to the 31st July rose by 13% following a strong performance from Niche Pharmaceuticals. Adjusted EBITDA rose by 23% and statutory operating prfit by 74% whilst net debt halved to 11.9m.
Rio Tinto RIO said that the rally in commodities was not sustainable but as we reported on Wednesday RIO’s first quarter growth reached double digit figures with copper up by 27% on the previous quarter. At the same time BHP Billiton BHP cut its iron ore production target for the first time in fifteen years.
Even silver, which has for a number of years steadfastly refused to perform its expected role as a tracker of gold , has suddenly shot up to become the best performing commodity of 2016, helped by huge demand from hedge funds and Chinese investors. In only eleven days this month the price of silver jumped by by 14%. Hedge funds bullish positions on silver are now at their highest since 2006. The last time they were so bullish on gold was in 2011 when the price of gold had reached the dizzy heights of $1900 per oz.
An almost infallible measure of the health of the world’s mining industry is Caterpillar CAT. Again as we reported last month, Caterpillars sales figures were forecasting a global collapse in mining production and mining activity. In only a few weeks the turn round has been so dramatic that Caterpillar has had to rush out updated figures showing that the rate of decline in machine sales had fallen sharply in all of its markets and that for March they were down by only 13% compared to March last year, whilst the figures for January and February had been down by 21% and 15% respectively. Hedge funds and speculators do not buy mining machinery. Only miners do that.
That, dear reader, is what the media, the high flying economists, the serious, oh so serious, news anchormen on Bloomberg and Alice in Wondervision, would have you believe. The Chinese economy is in decline, it is crumbling and look what the decline is doing to the prices of commodities. They are in free fall, have been in free fall and are going to continue free falling until the Chinese economy starts growing again.
Alan Green discusses Scholium Group (SCHO), BHP Billiton (BHP) and Royal Dutch Shell (RDSB) with Justin Waite on the ADVFN podcast. Click