Rebar futures are down 60 points or 2.2% to 2716 today and Dalian iron ore ore futures are down 17 points or 3% to 576. These are big moves and markets have closed almost on their lows. From Reuters:
“There is no sign that demand for steel can improve in the short term,” said Cao Bo, analyst at Jinrui Futures in Shenzhen, citing the prolonged weakness in China’s housing sector.
China’s home prices fell for a fourth straight month in August, data showed on Thursday, pointing to a deepening downtrend in the country’s property market that is weighing on the broader economy.
Real estate, along with infrastructure, account for about half of China’s steel consumption.
“I don’t think we’ve seen the worst for the iron ore and steel markets,” said Cao.
Losses in futures and lack of buying interest for immediate cargoes in China may weigh further on spot iron ore prices, traders said.
“Chinese steel mill restocking has been confined to small parcels this week and recent stimulus measures haven’t yet markedly improved sentiment,” Australia and New Zealand Banking Group analysts said in a note.
It is very likely that the iron ore spot price will print a new low on Monday. I think it also likely that the price will fall into the 70s next week.
Australian equity markets continue to trade as if the iron ore price is going to recover on a Q4 restock but that is now highly questionable as well. Markets are kidding themselves that the big miners are in control of this shakeout when in fact it is Chinese steel mills that are in control. They are driving the iron ore price as low as they can without giving up the stockpiled inventories that manipulates the price. This rout could run another two weeks yet and then not bounce back much either. If there is no restock and strong price resurgence by year end then the equity price carnage will spread to major miners and heavy tremors will shake Australian households.
The odds are rising quickly that Australia is entering an external shock driven by a Chinese property bust. More targeted Chinese stimulus will come but it’s pretty clear that that will not be enough to arrest the iron ore shakeout. China wants this bust (so long as it manageable) to shift its growth patterns.
To understand what this means for the Australian economy and your assets I encourage you to sign up to an MB membership and to read Will Iron ore Crash the Economy?. The time to prepare is now.
With those thoughts I bid you adieu for one week of holiday, leaving you the capable hands of Chris Becker and Leith van Onselen.
