How Trump poses a risk to Kumba's second half

Hard News / Hoofnuus

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 on cheap Chinese steel. US President Donald Trump is expected to receive a list of recom-mended anti-dumping measures soon.
The JSE-listed Anglo American subsidiary said in a trading statement on Friday14 July 2017 that its interim earnings, fuelled by higher iron-ore prices, would grow by be-tween 46% and 58% compared with 2016's earnings of just more than R3-billion.
Earnings were partially offset by the stronger rand, Kumba said, while analysts had mixed views about the price implica-tions of data showing that inventory levels at Chinese ports were rising. Mr Trump has re-peatedly 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 expect-ed 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 14 July 2017.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 opin-ions about news of rising inventory levels, a key indicator of prices.
Chinese iron-ore imports rose to their se-cond highest level in June, but high inven-tory levels at Chinese ports and a slowdown in economic activity in the second half of 2017 are expected to weigh on import vol-umes, capital economics analysts said on Thursday 13 July 2017.
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 Mr Trump's administra-tion - which has promised huge infrastruct-ure 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 le-vels". 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 be-came curtailed, said Investec. Business Day