Ignoring the un-hungry dragon

For some time now we have been wondering exactly what is going on with commodities. There have been huge falls in shipping volumes and price of commodities over the couple of months that have basically gone unreported in Australia.

The latest huffman report states.

“breathtaking” falls in the price of most industrial metal prices since mid-April – a drop of 18 per cent for aluminium, 13 per cent for copper, 27 per cent for nickel and 15 per cent for steel. Since China was responsible for 40 per cent of global consumption of base metals over the past year, these price drops could be suggesting that the economic landing there might not be as smooth and soft as had been hoped.

We also note that bloomberg have an on-going article about this that was again updated today. The article is attempting to be upbeat about the future of commodities, but what seems blantantly obvious to us is the story that seems to have gone missing in Australia.

Expectations for higher shipping costs suggest the 79 percent plunge in capesizes since June 2 doesn’t point to a new global economic slump. While last month’s Chinese steel output was the smallest since February, the nation still accounted for 45 percent of global supply. Three consecutive months of lower iron-ore imports may mean mills are running down inventories.

WTF? There was a 79% plunge in capesize shipping in June, and mills are running down inventory. In case you don’t know Capesize ships are the biggest ships with over 172,000 tonnes of dead weight making up 25% of the world dry product shipping.

This seems like huge news to us, but doesn’t seem to have even got a mention in Australia. The article from bloomberg reports.

Part of that less-optimistic outlook can be explained by China’s efforts to slow growth, which eased to 10.3 percent in the second quarter from 11.9 percent in the first. The nation raised bank reserve ratios three times this year and introduced lending controls to contain property prices. Citigroup Inc. cut its outlook for China’s 2010 economic expansion last week by a percentage point to 9.5 percent.

Baoshan Iron & Steel Co., the biggest publicly traded Chinese steelmaker, said July 13 it would cut prices for a second month amid weakening demand. Mills have curbed output, with Chinese production falling to 53.8 million tons in June, 4.2 percent less than in May, according to the World Steel Association in Brussels.

Again, where has this been reported ? There has been month on month evidence that China seems to be contracting its commodities demand. Sure people can be optimistic about “future growth”, but what about what is “actaully” happening right now.

There is also no sign yet of a drop in iron-ore stockpiles at Chinese ports. Inventory expanded for five consecutive weeks to almost 76 million tons by July 23, according to data from information provider Shanghai Steelhome. That came even as monthly iron-ore imports fell to 47.17 million tons in June, the lowest since January, customs data show.

So is it just us, or does that sound like China doesn’t actually need anymore stuff from Australia for a while ? Maybe a long while.

Maybe we are reading this wrongly? , but this seems like a huge economic problem for Australia that is simply being ignored, or at least not reported.

Disclaimer: The content on this blog is the opinion of the author only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author has no position in any company or advertiser reference unless explicitly specified. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult someone who claims to have a qualification before making any investment decisions.

Latest posts by __ADAM__ (see all)


  1. You need to look at the quality of the Chinese domestic iron ore reserves, however, and their need for coking coal…

    They still need Brazilian and Australian iron ore for the moment.

    (Although how much of buoyant mineral prices is driven by Wall St speculation?)