It’s one the of the more drudgerous tasks in my job description but I’m required to point out weak analysis when it appears. Glenn Dyer of Crikey likes to dabble in iron ore markets, usually for the sole purpose to declaring “doom and gloom” wrong, and has done so again at Share Cafe recently:
The big rise in Chinese exports in July and the fall in imports grabbed the headlines, but for Australia the important data was the third highest level of iron ore imports on record – contrary to what the forecasts of falling sales and prices from the usual collection of worryworts and local ‘experts’ in recent months.
In fact China’s iron ore imports jumped 11% to more than 82 million tonnes in July.
That was much higher than many local experts had thought and for yet another month, confounds the doom and gloom reporting.
Yes, iron ore prices are down (perhaps why the Chinese steel are boosting their purchases), but demand, especially from Australia, isn’t being impacted.
Australia’s share of Chinese iron ore imports was 61% of the total in June and higher in July,and 56% in the first half of the year, against about 51% for the whole of 2013.
Australian exports to China from Port headland (the key iron ore export port) hit an all time high of just under 31 million tonnes in July, up from the previous high in May.
Total iron ore exports from Port Headland last month were an all time record of 36.08 million tonnes in July.
And for experts like the economists in the Reserve Bank, that’s no surprise as it is classic economics and business strategy that companies try to maximise output when prices weaken.
The article goes on with a dizzying array of statistic that clearly implies you should pile into iron ore stocks ASAP.
But what does it actually tell you? The article’s premise is an emotive attack on “doom and gloom” not any assessment of the facts. Nobody has declared that iron ore sales are falling or will fall in the immediate future. MB hasn’t. Sell side analysts haven’t. The debate is about the outcome of rising sales versus falling prices and whether or not the balance of those two inputs will benefit Australia or individual iron ore stocks.
The article is based upon a straw man that leads to all sorts of bad conclusions. That Australia’s share of the iron ore market has jumped is no surprise to anyone given the huge supply side response has been from…Australia. Record shipments at Port Hedland is no surprise for the same reason. And if you want to rely upon economists at the RBA who did not predict the prices falls, did not predict the steepness of the terms of trade rout, were still expecting mining investment to be rising at this point and argued that Chinese growth would be far higher for far longer than we’re seeing then I’ve got bridge I can sell you.
Look to the markets, Glenn, not your imagined bears.
