Iron Ore in free fall - Perth property next!

3 key underlying variables:

*iron ore price
*iron ore volumes
*AU$

(this isolates other variables such as interest rates, government fiscal policy etc etc)

Dont just make the assumption based on iron ore prices.
 
key to what IV? or just central ideas to a discussion on iron ore pricing and profitabilty? perhaps also ownership on the share registry, or to keep it as numbers, % Australian ownership
 
Ausprop said:
key to what IV? or just central ideas to a discussion on iron ore pricing and profitabilty? perhaps also ownership on the share registry, or to keep it as numbers, % Australian ownership
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key to the opening post in this topic.
had a brief read of the rest of the thread, too many distractions.

But property prices in perth are not tied soley to the iron ore price. To think in such terms is naive.
 
oh ok. yeh it's a bit of a long bow to draw but any injection of cash into the system is welcome if it sticks. good ones can be the likes of the US fleet visiting - that's hot foreign currency hitting the system like a sugar rush and running round the blood stream quite a few times before dissipating, where as I am not sure how much of the cash from something like the SKA project will stick?
 
carbine said:
Not quite. As someone who works in the construction Industry and gets paid way too much I should be one who is most worried, however I am not. The Business development boys where I work have been flatout since Christmas with the big boys. Things are happening!

Behind closed doors the mega projects are moving again, the capital is flowing and the major expansion plans are back on (rio, bhp, and fmg).

Chevron are looking at plans to take gorgon out to 8 trains which will be in construction till about 2020.Then there is Wheatstone, Browse and Ichtys (NT but heavily WA resourced).

There are also numerous projects on hold that will fire up when the heat in the labor market cools down, this will ensure maximum capacity in construction industry for the next decade.

Fear less
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This is true. Certain projects became unviable with high labour costs but if there is a cool down they will become viable again and go back into scope - which in turn will stop other projects.
It's so very cyclical here. O&G is taking much of the labour so Iron Ore might not get it at the moment.
Technology also plays a big part. Once unviable projects become viable again with technology improvements to reduce costs.
I sit here cozy in my little O&G kingdom wondering what all the fuss is about ;)
 
carbine said:
Not quite. As someone who works in the construction Industry and gets paid way too much I should be one who is most worried, however I am not. The Business development boys where I work have been flatout since Christmas with the big boys. Things are happening!
Click to expand...

Yes but at an industry level volumes are dropping. There's been a noticeable slowdown since Xmas.

Behind closed doors the mega projects are moving again, the capital is flowing and the major expansion plans are back on (rio, bhp, and fmg).
Click to expand...

Rio has about another 12 months to go on its expansion before things slow up quite significantly. Rio will face more challenges going forward as ore drops in price. It's highly exposed business model is vulnerable and more so since their write downs of Aluminium resources.

BHP is consolidating its ore operations and has its interests focused more on energy plays in other parts of the world. BHP has stated it will focus future development on improving inefficiencies not expansion. Code for contraction.

FMG has some serious liquidity issues going forward. It needs to get production up to justify the huge investments it has made in recent times. Ore prices below 120/dmt will crucify it. It is already in slash and burn mode. Any contractor that is not essential to operations is being bumped.

Chevron are looking at plans to take gorgon out to 8 trains which will be in construction till about 2020.Then there is Wheatstone, Browse and Ichtys (NT but heavily WA resourced).
Click to expand...

Wheatston has some years to run at this point but is astronomically over budget. Shell has delayed Browse and Arrow which look like they will be substantially modified if they do. Fortunately the Ichthys project will go ahead however WA will see little of that project.

There is no doubt there will be substantial projects on the go at any one time and many smaller ones. The challenge will be in dealing with the quite substantial over capacity as volumes drop off.

8544037234_b0bd906d38_z.jpg

http://www.scribd.com/doc/129026790/2013-03-07-Mining-investment-pdf

There are also numerous projects on hold that will fire up when the heat in the labor market cools down, this will ensure maximum capacity in construction industry for the next decade.
Click to expand...

If projects don't make it now it's unlikely they'll see the light of day for possibly decades. As for the construction industry it's struggling big time.



Note: below 50 means contraction and numbers below 45 indicate a serious contraction

Fear less
Click to expand...

It's not about fear it's about understanding the likely pathway of an economic region and adjusting accordingly. I've never seen "She'll be right mate" in any management theory I've ever read or for that matter how to invest wisely in property.
 
i think we are forgetting the oil and gas sector not only in WA but also QLD and NT. they are major contributors as well, without the hype.
 
FMG has some serious liquidity issues going forward. It needs to get production up to justify the huge investments it has made in recent times. Ore prices below 120/dmt will crucify it. It is already in slash and burn mode. Any contractor that is not essential to operations is being bumped
Click to expand...

FMG's break even point is around the $90p/t till Solomon Hub and its infrastructure comes online, which is soon, at which point this drops to around the $70-$74 mark
 
kero said:
i think we are forgetting the oil and gas sector not only in WA but also QLD and NT. they are major contributors as well, without the hype.
Click to expand...

Not sure how Qld and NT play into the Perth property market.

The Perth market has some heat in it at the moment but I wouldn't get too excited just yet. If you run out now to chase a perceived opportunity because you think there will be a run on property over the next year or so you might be disappointed.

I and many others I know have pulled back from the regional towns to the Perth region. We'd had enough of mining towns and could see the writing on the wall.

Port Hedland has a rental vacancy rate that for the last 6 months has been increasing at the rate of 17/mth on average. FIFO accommodation in Karratha is running at 53% last I heard. The unwind is in progress and only expect to see that continue and possibly accelerate over the next 18 months. I tend think Perth will see a bulge in demand as this works itself out.

The question to ask is what will the market look like under various scenarios (best case/worst case). There are a lot of people who have come to WA for the resource sector construction work. If that sector contracts too far I would expect to see internal immigration either reverse or slow substantially. I and many others I know are heading back to home towns over the next year or so.

I don't see a bust in resources but I think those who think the WA resource sector won't contract back to preboom norms is being overly optimistic to say the least. That adjustment could take a few by surprise.
 
Ryangler said:
FMG's break even point is around the $90p/t till Solomon Hub and its infrastructure comes online, which is soon, at which point this drops to around the $70-$74 mark
Click to expand...

Watch BHP and Rio crush FMG. They only have to run the price down to 80 for six months and FMG's in all sorts of bother. There's no love lost between FMG and its competitors that's for sure.

The last time ore dropped it only stayed there momentarily yet that cycle of deteriorating prices crucified FMG's profit by 40%. The idea that breakeven is 90 and would drop to the mid 70's is dubiuos to say the least. FMG is trying to sell assets as quickly as it can to reduce its servicing costs and rejig its balance sheet.

Like all the majors the next challenge won't all be about price. Volumes will play a significant part in this game. Without volume infrastructure will become uneconomic.

The next few years will be entertaining as far as FMG goes as long as you don't have skin in the game.
 
Ausprop said:
Rio cutting jobs in coal

http://au.news.yahoo.com/thewest/business/a/-/national/16398494/rio-to-slash-100-jobs/
Click to expand...

Interesting that the unions claim they didn't know the cuts were coming ... hubby's HV mine has known they will lose at least another 50+ for over a week now ... just don't know who and where as many sections are already running on skeleton crews, with essential contractors only, no new projects coming thru and they've already screwed down their suppliers prices.
 
Last edited:
willair said:
I'm glad i sold them a long time ago,after reading that..
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Have a look at shorted stocks here. FMG @ 0.39% of issued capital

They're one of the most heavily shorted stocks on the ASX. Twiggy hates it I believe. I think he's determined to prove Jim Chanos wrong but I fear the Gods may be against him long term.

I'm wondering what Reinhart will do with Roy Hill. Can't see that one getting off the ground while prices are dropping. You'd have to be certifiable to throw $$$ at major iron ore projects now. I believe she needs something like $9B. Correct me if I'm wrong but that's FMG's Cloud Break, Xmas Creek and Solomon rolled into one.
 
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