The iron ore complex tanked again yesterday:
Perhaps some hope in the contango with the 12month which did signal the bottom in last year’s crash:
But Chinese steel prices are still falling too:
Here are some choice iron ore quotes from Reuters:
- “We believe that China is in the middle of a considerable inventory adjustment. While there has been some suggestion that steel mills are destocking we believe this could take time,” Deutsche Bank said in a note.
- Between March 2 and Aug. 24, the price of rebar in south China has fallen 14 percent to $607 a tonne, while the supply of steel stocks has dropped to 5.83 days from 7.02 days, Commonwealth Bank of Australia said.
- “Sentiment is so bearish, and mills are just in wait and see mode right now. If someone’s buying, they’re asking for a big discount,” said an iron ore trader in Shanghai.
- Credit rating agency Fitch said the price weakness in both steel and iron ore should continue through to the end of the first quarter of 2013.
- “Fitch believes that the prices of steel and related raw materials – including iron ore and coking coal – are unlikely to rebound in the short term, but rather are looking for new equilibriums that take into account the increasing supply of raw materials and demand growth for steel which is likely to be slower,” it said.
Bingo, Fitch!
And the AFR:
- Macquarie analyst Graeme Train said the price could fall as low as $US80 a tonne if Chinese steel mills continued to reduce their stock and steel demand and pricing remained weak.
- CLSA…cut forecasts for 2012 by 5 per cent to $US129 a tonne and to $US110 a tonne next year, followed by just $US85 a tonne in 2014.
- CLSA commodity analyst Ian Roper said even with downgrades to expected new global supply, the market would be oversupplied by 200 million tonnes a year by 2016 as a result of China’s own mines.
- “We have redeveloped our domestic iron-ore cost curves at a provincial level and found that costs have compressed by around $US10 a tonne for marginal suppliers over the past year, mainly due to lower energy costs and lower local-government taxes,” Mr Roper said.
All good. But I’m afraid still not bearish enough.
Mr Holes I see you are in a bit of a predicament. You called the fall in iron ore a while ago and outlined the associated risks, while no one listened. I can’t help but feel these daily posts are a tad on the gloating side, but if these risk play out will be nothing to gloat about.
I’m not aiming to gloat. I know what it means. But I can’t very well ignore it as it falls 5% per day…that would make me as culpable as the MSM. This is the only site in the world you can get this data.
What do you suggest I do?
I 100% agree with you, you have to call it out when others won’t. Maybe just the tone, then again I am no writer so il leave that to your expertise.
An unwinding of the China/commodities complex is the biggest risk facing Australia. Australia needs to face these risks openly rather than burying our head in the sand like the MSM and our officials (looking at you RBA).
This course of events was highly predictable – only the timing was uncertain. Yet, outside the commentators on MB, almost no one in Australia saw this coming or considered it a major risk – a classic case of ostrich economics (bury one’s head in the sand and hope for the best).
Byron, have you seen the amount of sh!t thrown at H&H by the Yippie Bruce Willis character and the Minebot? The gloating, if it is that, is well deserved.
+1
In the past few years anyone who called the tighter times ahead was labelled a communist and un-Australian. H&H (among others) has consistently been right despite personal attacks from many posters here.
Bullshit. I don’t think I have ever attacked HnH in a personal manner. I have disagreed with some of the presentation style of his views and have called the point every time (ie anti mining bias) which is separate to factual movements in price and demand.
The current to’n'thro with Yippee and HnH has focussed on the the floor price and on that point Yippee has been correct. There has been misrepresentation of the floor and a misconception that the floor was magically set in stone. It never was.
Finally, remember that until recently all and sundry here at MB were calling for renewed taxes, supporting TAIs call for limits to be set on mining, etc which were ludicrous at the time and even more so now. These calls were made only weeks ago, how quickly events can change.
3d1k, since I didn’t name you, I take it that you accept that you are The MineBot?
You may not have personally thrown sh!t, but you agreed rather vigoursly with Yippie when he throwing sh!t at anyone remotely bearish on China.
What a steaming pile, 3d. Yippee is trying to defend nothing more than hot air.
There is no such thing as a price floor.
There is supply and demand and as cheaper supply comes on more expensive gets knocked out.
Add diminished demand growth and it happens quicker.
It’s the same dynamics that occur in every market on earth.
Price floor my arse.
HnH. Steady there. I’ll tell you a little story – to the best of my knowledge I may have been the first to reference to a ‘floor’ – it was intended as a guide as to why IO would generally maintain price levels last year when many were saying decline imminent. It appeared to catch on!
It was never intended as an absolute!
Are you being critically just for the sake of it?
The tone was spot on. In fact, there are hardly any words in this entire piece – doesn’t need to be, as the charts told the story exactly as written.
^ critical.
+1
Don’t see any gloating. Good solid analysis is what I see with continueing coverage.
only gloating you’ll hear is how well the short position on FMG is going for MI (or me personally)….but then again, its just another trade
Having said that, anyone want to buy some cheap Aussie CDS?
that would make me as culpable as the MSM. This is the only site in the world you can get this data.
I keep looking for the headlines in the MSM about iron ore and coal prices but I never find them. I find this utterly extraordinary. Its as if we’ve decided as a nation to put our head in the sand and pretend its not happening. The way government ministers jumped all over Marn’s “gaffe” that the mining boom had ended only reinforces this view.
LOL! I’ve just noticed Leith has also gone for the Ostrich metaphor. I wrote the paragraph above before reading Leith’s comment. Honest.
The silence is an extension of the fundamental problem – aside from Tim Colebatch there is no free thinking media commentary. If the RBA doesn’t say it it isn’t real
Kochie mentioned it on Sunrise this morning.
Peter Martin and Colebatch have picked up the Variant Report today. Colebatch has been consistently good through the boom, but Martin has definitely been in the boom-will-last-forever and the-strong-dollar-is-good camp for the past few years. He seems to be slowly turning around though, especially now since the AUD had decoupled from our TOT. Mind you, I’ve been a serial pest on his blog for several years now, endlessly banging on about Dutch Disease etc.
Beat me to it Jim jim.. It’s a shame he didn’t spend a bit more time explaining it, instead of just pointing at the (admittedly alarming) graph.
It’s in the AFR too. That’s why 3d1k bothers you all so much. MB is the unreferenced source for many good economic articles in the MSM.
The Variant report was flawed. Their call that the nation a victim of Dutch Disease that had crowded out other sectors inaccurate and not supported by any factual evidence. There is no mass unemployment due to any sector’s alleged destruction – we have had close to full employment, a stable housing market and healthy GDP growth post GFC – all on the back of the resources sector growth. Dutch Disease has in fact proved a post GFC cure!
Secondly their claim that the unwinding of Dutch Disease following demise of the boom and the dollar will miraculously result in resurgence in industrial/manufacture sector is wrong. Have these sectors post GFC in any developed nation resurged? A lot has changed in the past decade or so. Globalised manufacture has shifted the goal posts for domestic manufacture – and don’t forget that much GDP growth in the past decade or so has been precariously built on the back of the biggest credit bubble in history. And that is over.
There seems to be a concerted effort today to discredit the Variant report.
While our MSM reaches for the half full glass of Kool-aid, overseas coverage is coming in thick and fast
http://www.guardian.co.uk/business/economics-blog/2012/aug/29/china-australia-iron-ore?CMP=twt_gu
Indeed JimJim,
Glad someone is paying attention, HnH is no doubt watching the affirmative action candidates over on the ABC with his breakfast.
“I’m not aiming to gloat.” H&H
And you really shouldn’t, because memories are indeed short.
from August 9:
http://www.macrobusiness.com.au/2012/08/ore-breaks-lower/
“Furthermore, check out the almost perfect blue head and shoulders pattern. The charts are signalling much more downside. I’m not so sure, my target for this down move was $1.10. Mind you, it may overshoot first.”
Vague enough for wriggle room no doubt, but as I pointed out then, the target for a SHS reversal is the height of the peak from the neckline, which would be about $60 in this case.
I got a lecture from someone about technicals not being perfect, well of course they aren’t. But they have decades of history behind them and proper users don’t pick and choose targets at their whim.
Byron, if anything H&H has been highlighting the dangers for a long time. It can be frustrating seeing the train wreck about to happen and no one is listening. Our biggest problem is inept government, treasury and RBA. China now is imploding in more than iron ore, and here is the latest on solar:
http://www.telegraph.co.uk/finance/newsbysector/energy/9506945/Dark-clouds-gather-over-Chinas-once-booming-solar-industry.html
There is about nine to twelve months of stockpiled steel as well on last years consumption figures, and it’s likely a lot more with the contraction globally going on.
This is not going to end gracefully.
if your batting above average then might aswell gloat… then again no trade no care imo
This is not gloating. H&H’s job is to use data and experience to estimate the likely future(s) and to describe that as he sees it. Unlike virtually every other commentator who is paid to do this (I’m not even sure if H&H IS paid) he has conspicuously done this. What’s he supposed to do – pretend he didn’t pick it?
Like many who read here, I would like to thank the MB team for the incredible public service you continue to provide and I wish you all the success you thoroughly deserve.
The collapse in ore prices is all H&H’s fault. He’s been continuously negative in his writings in the face of the facts. What was needed from him was positive tone; a glass half full theme, then none of this would have happened.
Yeah! One fringe blogger has talked down the entire economy, indeed, he talked down the Chinese economy as well.
Shame on you Mr Holes. Shame.
To his credit his has helped maintain sanity and solvency among people who found their way to read MB.
+1
“helped maintain sanity and solvency ”
Well said Goldi.
Well said Goldilocks
And the others on MB as well. You guys are doing a great job.
+1 H&H is enemy #1 in the vendetta against “negative economic news coverage”.
Facts are no longer allowed. When did Ozenomics become Ostrinomics (to keep with the ostrich themes)?
The 2nd order effect here guys is super funds invested in Rio (80% revenue from iron ore). How many of those market makers will act to protect the members?
Just to add to the info above, here is an interesting link from overnight news.
http://www.nasdaq.com/article/china-says-payment-delays-defaults-may-worsen-20120829-00001
Vortex, and this one. It’s a bit bitter, but it describes a wider Chinese problem other than just iron ore.
http://chinadigitaltimes.net/2012/08/to-know-whats-wrong-with-china-look-at-her-construction/
I was over there on business last May and saw some of this with empty factories in industrial estates, half built buildings, etc.
OT: How is your invention thing going on? Did you find Chinese suppliers?
I ask because I may have some idea for an electronic trinket to be manufactured there
I sourced some parts in China like the packaging, and stainless nuts/bolts, but it took a lot of time. The packaging it’s ok, but not to the spec I was shown, so it’s a real lottery in some cases.
The main design I did here, and it’s being manufactured in Melbourne, and the production starts tomorrow. Big problem here now, in my case, the company had to lay off half the staff as the manufacturing collapsing here as we all know, but that has added a lot of time for me to get to market. That is a potential killer as economic condition in my market is also collapsing; it’s a cycling product, and I’m seeing a lot of the shops closing down, and others laying off staff.
Anyway, I’m working on my next product and it’s electronic and I may get that done in China.
Have a look on alibaba and see the ratings to help, but I’ve found it very tough to get to where I am now. I do this part time so I end up working at least 12 hr days , seven days a week.
If you can find a good manufacturer there it will work out ok. Good luck.
Thanks for the info. Appreciate it and good luck with your venture.
+1
a63, thanks. Its seems as tho the whole world especially financial and political is an orchestrated web of deceit to the nTH degree. The greatest risk of all would be the ‘truth be told’
I bet Jim Chanos is laughing his a$$ off all the way to the bank…..
I linked earlier today to a Henry Thornton post following his visit to Yandi region here in WA.
Fascinating insight into the costs associated with one of the most efficient iron ore mines in the State.
Think it may have been deleted in error…