Port Hedland and two other ports in Western Australia that account for a major portion of the global seaborne iron ore trade reopened and miners started to return to work on Wednesday after cyclone Christine caused a more than two-day shutdown.

Tropical Cyclone Christine, a category three storm which reached the Pilbara region of Australia late Monday forcing the closure of iron ore mines and halting shipments caused only minor infrastructure damage.

Port Hedland exports iron ore from mines owned by BHP Billiton (LON:BHP) and Fortescue Metals (ASX:FMG) , the worlds number 3 and four exporters of the steelmaking material.

The port handled a near-record 22.3 million tonnes of cargo in November which was also a 37% increase over the year before.

Rio Tinto (LON:RIO), number two iron ore miner behind Brazil's Vale (NYSE:VALE), which is ramping up its annual capacity to 290 million tonnes, exports via the Dampier and Cape Lambert terminals north of Port Hedland.

China consumes close to 70% of the 1.1 billion tonne global trade, half of which is exported from Australia. Iron ore is the world's number two seaborne commodity trade after crude oil.

The benchmark CFR import price of 62% iron ore fines at China's Tianjin jumped to $134.20 a tonne in anticipation of the weather disruption. The raw material is up sharply since hitting lows of $110.40 a tonne in May last year according to data supplied by The Steel Index.

The Sydney Morning Herald reports  that the impact of the cyclone on a longer term basis would in all likelihood be negligible:

“Cyclones in the Pilbara are part of what happens and disruption to shipping is built in to market expectations at this time of year,” Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. “To be more concerned, the market would need to see a more protracted delay to shipments and production, or serious damage to infrastructure.”

Source mining.com 
Image bluecloudspatial 

Commodity trading companies active in multiple markets have used easy access to finance to expand their physical holdings, creating a potential “systemic” risk, according to two research groups in Brussels.

The merger of Glencore and Xstrata Plc signals commodity trading has reached “a tipping point,” where more investments in physical holdings rather than futures or services may lift profitability, according to a report by the Centre for European Policy Studies with the European Capital Markets Institute.

The 10 largest trading houses, which include Vitol Group, Baar, Switzerland-based Glencore Xstrata Plc and Trafigura, had almost $1 trillion in revenue in 2011, according to the report. Glencore and Trafigura declined to comment, while Vitol said commodity traders are unlikely to pose a systemic risk.

“The use of financial leverage to increase physical holdings, through the easy access to international finance helped by accommodating monetary policies, may have systemic implications,” according to the researchers. Disclosure of physical holdings and a minimum amount of information that must be provided to regulators could reduce the risks for governments, the researchers wrote.

Any failure of a commodity trader wouldn’t pose a substantial risk to the economy, Craig Pirrong, a professor of finance at the University of Houston, said in May, citing an unpublished study for the Global Financial Markets Association.

Physical PositionsVitol, the world’s largest independent oil trader, reported revenue of $303 billion last year and Trafigura Beheer BV’s sales were $120.4 billion. Glencore Xstrata, the largest listed commodity merchant, had $189.7 billion in marketing revenue last year.

“As highlighted by the collapse of Enron, one of the largest energy trading companies of its time, physical traders are highly unlikely to pose systemic risks -- their positions are largely physical, hedged, liquid and short-term,” Vitol wrote in an e-mailed comment. “Trading houses should be allowed to fail and, when they have, there has been little or no disruption to the orderly functioning of markets or the supply of commodities.”

More than 5,000 jobs and $1 billion in employee retirement funds were wiped out when Enron Corp. plunged into bankruptcy in December 2001. Investors sued to recover more than $40 billion in market losses.

“Information on financial and physical activities for some of these global firms is limited, so an assessment by supervisors of financial stability and market structure implications is currently very hard to perform,” the researchers wrote.

Policy ResearchCEPS is a policy researcher, which gets funding from the European Union, companies and national goverments. ECMI is part of CEPS and produces policy briefings and research reports on European capital markets.

International coordination may be needed to share information about physical holdings by commodity-trading companies, according to the report.

The researchers found linking of the global physical commodity markets with the financial system and accommodating monetary policy have raised the effect of the economic cycle and commodities’ vulnerability to short-term shocks coming from the financial system.

Demand and supply fundamentals remain “solid” long-term drivers of commodity futures’ price formation in all studied markets, according to the report. CEPS and ECMI looked at oil, natural gas, iron ore, aluminum, copper, wheat, corn, soybean oil, sugar, cocoa and coffee.

‘Benign’ RoleThe role of non-commercial operators in commodity markets has been “generally benign,” and the growth of index investments has not yet caused distortions in price formation, according to the report.

“An indiscriminate ban on legitimate trading practices may result in liquidity losses at the expense of the efficiency of price formation,” CEPS and ECMI wrote.

Claims that the size of futures markets compared to physical markets may distort price formation could be neither proven nor ruled out, according to the report. Annual volumes of trading in the main corn future is as much as nine times larger than physical production, it said.

Public spending on infrastructure or technology to improve production may be beneficial alternatives to price subsidies, which have a possible distorting effect, the organizations wrote. China overtook the U.S. as the biggest subsidizer of agricultural commodities in 2012 at about $180 billion, according to the report.
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