MARKETS SPECTATOR: Arrium's poor port overhang

First, the good news. Arrium’s iron ore sales and price, probably a contract one, are up quarter-on-quarter.

In the three months to March 31, iron ore shipments were 1.97 million tonnes, up about 150,000 tonnes from the three months to December 31. Year-to-March sales, 5.39 million tonnes, are up almost a quarter year-on-year. More importantly in the March quarter, the average price for Arrium iron ore – freight on board – was $US114 a tonne, up $US13 a tonne from the December quarter.

The stock has, however, has not responded positively to the company’s latest disclosure. At 11:37am AEST Arrium shares were down 3 cents, or 3.3 per cent, to 87 cents. The stock is trading at 7.21 times forecast 2013 earnings compared with the benchmark S&P/ASX 200 Index which is trading at 14.4 times.

Arrium’s methods of getting its iron ore to ships are among the most inefficient of any miner. Its Whyalla port cannot handle capesized vessels – on average are 170,000 deadweight tonnes – that are typically used to transport iron ore. It loads these ships by using barges that transport the iron ore from Whyalla to the ships anchored some distance offshore. The whole process takes up to seven days. At Rio Tinto’s Port Dampier or BHP’s Port Hedland facilities, capesized ships berth alongside wharves. They are loaded in about 24 hours.

Arrium says it is expanding the Whyalla port so it can handle 13 million tonnes per annum, up from 7 million tonnes. That may be well and good but the iron ore price is sliding. It is down about 9 per cent in the last four weeks to $US123 a tonne. Arrium may have to accept lower iron ore prices without the ability to offset them through large sales.