The iron ore, coal and steel booms are heading for the status of the last great boom/bubble as oil prices subside and other inflated investment areas (housing) bring economies around the world to their knees.
The impending super results from BHP Billiton for the June 30 year (when analysts reckon the company's earnings could top $US16.2 billion, up around 25% or more, thanks to higher oil, gas and coal and iron ore prices); the surging price of iron ore and coal (iron ore up 80%-90% and coking coal up 200%-300%); two multi-billion dollar deals in North America and record results from the world's biggest steel group, ArcelorMittal, all point to a continuation of this last boom.
But slowing demand from China, India and the more developed economies, plus the impact of 40%-60% lift in steel prices, questions whether this boom will continue as some of the players think it will.
It's certainly the financial underpinning of the BHP bid for Rio Tinto and its huge value of around $US150 billion, but there was absolutely no recognition of this in the letter to Rio shareholders this week, and the brochure, from BHP chairman, Don Argus.
BHP shares closed at $39.71, up 45c and Rio shares jumped $3.90 to $125.40. That narrowed the gap between it and the BHP 3.4 share offer which stood at $135.01 last night, down around $1-$2 in the past couple of days.
Rio Tinto will be another looking to report a solid rise in earnings, but it is hitched to higher iron ore prices; whereas BHP's profit rise will be driven by higher oil, gas, iron ore and coal (for the June quarter), which will offset a big drop in nickel, lead and zinc prices. Copper prices will be a positive, but the impact won't be as dramatic as in 2007.
But what's clear is that BHP and Rio Tinto and a fleet of smaller coal and iron ore groups, hopeful and realistic contenders, will not be the only winners from this bubble, as some in this country believe.
There are those two big deals in North America: the first saw Cleveland Cliffs, the big iron ore group, bid $US10 billion for a big US coal group called Alpha, and the Canadian global zinc giant, Teck Cominco, wrapped up a $US14 billion dollar offer for the Fording coal group and trust, including the Elk River mine, a world class operation.
Teck Cominco is buying the Fording Canadian Coal Trust for $US14.1 billion in cash and shares that will make it the world's No. 2 exporter of coal used in steel making after BHP Billiton.
The deal will allow Teck to take advantage of coking coal prices that have nearly tripled in the past year to more than $US300 a tonne as demand has surged, from Asia.
The friendly deal will see Teck gain full ownership of the Elk Valley Coal Partnership, which is 60% owned by Fording. Teck already owns about 20% of Fording, and also the remaining 40% of Elk Valley.
Iron ore and coal miner Cleveland Cliffs said last week that it would acquire Alpha Natural Resources for $US10 billion in cash and stock, expanding its coal assets and positioning itself to capitalize on the global steel boom.
The combined company will have a reserve base of about one billion tons of iron ore and about one billion tons of metallurgical and thermal coal, with annual sales volume of over 30 million tons of iron ore and nearly 18 million tons of metallurgical coal. It will ship about 17 million tons of thermal coal annually. It will include nine iron ore facilities and more than 60 coal mines located across North America, South America and Australia.
Alpha is the major miner of coking coal on the US East Coast and also produces thermal coal for the power industry.
And the first half results from ArcelorMittal and bullish comments from founder and driving force, Lakshmi Mittal, add to the feeling that a bubble is burbling in steel, iron ore and coal.
He said supply constraints and strong demand would put a firm floor under prices and profits for the steel industry until at least 2011. Mr Mittal, the main shareholder of ArcelorMittal with a 45% stake, said in a briefing after the results that the steel industry was in a "strong and sustainable position" over the next three to four years.
ArcelorMittal is the largest steelmaker in the world, with 10% of global output. The company's solid rise in earnings followed a good report from the US Steel group earlier in the week.
Mr Mittal was reported by the Financial Times as saying that while there is a slowdown and softness in some markets, in particular in southern Europe and the US, "I don't see any major weakness in overall levels of demand".
ArcelorMittal said its first half profit more than doubled with second-quarter profits surging 114% to $US5.8 billion after $US2.7 billion in the second quarter of 2007. Sales jumped 39% to $US37.8 billion, from $27.2 billion.
First half EBITDA of $US13.1 billion jumped 35% over the same period in 2007. Sales rose 31% to $67.6 billion, compared with the first half of last year and net profit rose 65% to $US8.2 billion. That means that if the growth rates are maintained over the next half, Arcelor's net earnings could easily top $US17 billion and match BHP's expected earnings surge.
Guidance for third quarter earnings are for profits to exceed $US8.5 billion on an EBITDA basis.
Given the earnings gains of ArcelorMittal, it's no wonder the company and its driving force oppose BHP's bid for Rio Tinto. It threatens to take some of the steel groups' price setting ability away from it and hand it to the shareholders of the merged company.
Mr Mittal said that demand in emerging economies such as China, India, South America and the Middle East remained strong. But he did admit that global demand would slow in the next five years to a range of 3%-5% a year, compared to 7% a year over the past five years.
"A projection of 3 per cent growth in the next few years is probably pessimistic while 5 per cent is realistic," he was quoted as saying. That would mean an extra 50 to 70 million tonnes of steel a year would be needed. So new mills would have to be built and new coal and iron ore contracts signed and developed.
The ArcelorMittal chief said high costs of iron ore were adding to the supply problems, as was growing concern about the large amounts of carbon dioxide emitted by steel plants.
But he said the continuing imbalance between demand and supply would drive prices higher in the next few years.
That's why the company has been actively looking for coal and iron ore investments in Australia, as elsewhere. It recently snapped up a 20% stake in Macarthur Coal (with rival Posco with 10% and Citic of China with 20.2%).
But bubble or no bubble, so long as the demand from China, India and other emerging economies doesn't follow the developed world economies sharply lower, there's still going to be plenty of money made from what was once considered by all the trendy broking and investment analysts as boring earth (iron ore), black stuff that was rubbish (coal) and a commodity whose price was falling (steel).
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