Kumba faces China slump

• Poor prospects for second half set to take the shine off iron-ore producer’s glowing interim earnings amid economic slowdown

SA’s top-tier iron-ore producer Kumba Iron Ore expects to announce a 50% increase in interim earnings in July, but faces a gloomy second half amid warnings of falling Chinese demand.

SA’s top-tier iron-ore producer Kumba Iron Ore expects to announce a 50% increase in interim earnings later this month, but faces a gloomy second half amid warnings of falling Chinese demand.

The global steel sector is also bracing for the prospect of the US imposing tariffs against cheap Chinese steel. US President Donald Trump is expected to receive a list of recommended antidumping measures as soon as this week.

The JSE-listed Anglo American subsidiary said in a trading statement on Friday that its interim earnings, fuelled by higher iron-ore prices, would grow by between 46% and 58% compared with 2016’s earnings of just more than R3bn.

Earnings were partially offset by the stronger rand, Kumba said, while analysts had mixed views about the price implications of data showing that inventory levels at Chinese ports were rising. Trump has repeatedly accused China of dumping cheap steel, and has raised the issue at the Group of 20 summit earlier in July.

The summit subsequently resolved to “rapidly develop concrete policy solutions that reduce steel excess capacity”. These policies are expected by November 2017.

Kumba has had a volatile ride on the JSE so far‚ peaking at R213 in the first half of 2017.

It ended the day’s trading at R172.08 on Friday.

The benchmark price of ore with 62% iron content delivered to China peaked at $94 a tonne in February 2017 before easing to the ruling price of about $63 a tonne. Prices are expected to soften in the second half of 2017, with analysts expressing diverse opinions about news of rising inventory levels, a key indicator of prices.

Chinese iron-ore imports rose to their second highest level in June, but high inventory levels at Chinese ports and a slowdown in economic activity in the second half of 2017 are expected to weigh on import volumes, Capital Economics analysts said on Thursday.

Ian Cruickshanks, an economist at the Centre for Risk Analysis, said the iron-ore sector would be unable to rely on Chinese demand continuing at its recent pace. A boost to demand by Trump’s administration – which has promised huge infrastructure spending in the US – was also unlikely, he said.

Investec analysts said that, in their view, inventory levels at ports, relative to iron or import volumes, “seemed to be at normal levels”.

This was the natural consequence of an increased reliance on seaborne imports.

It was also the result of mills seeking higher quality produce as domestic production became curtailed, said Investec.