Is iron ore swimming naked?

It’s not until the tide goes out that you know who’s been swimming naked, said Warren Buffet famously. Today a video by Reuters of ANZ Bank’s Nicholas Zhu sneaking into Qingdao port to examine enormous stockpiles of iron ore raises the discomforting notion that some large component of Australia’s export boom is shriveling in the wind as the waters recede.

Meanwhile, on Friday the iron ore price continued its slump, down 1.72% to $131.30, just above its post recovery low since the October crash:

There was better news with 12m iron swaps rising a few pips, after basing in the past few days above the important $120 level which the market appears to have some ongoing faith in. Shanghai rebar was flat.

 

Comments

  1. “It’s not until the tide goes out that you know who’s been swimming naked, said Warren Buffet famously”

    Are we about to find out with the Australian miners?

  2. China Watcher

    In the last 4 times that I’ve been to the port of Qingdao over the last 2-3 years, I’ve never had to “sneak” in…

    The stockpiles are there for all to see. And they were larger in my most recent visit in March than at any time previously. So what. China’s crude steel output is also now larger than at any time in the last 3 years.

    Don’t get me wrong – I’m worried that steel supply (iron ore demand) is running ahead of steel demand. But I suggest the important point is to look at inventory in terms of days or weeks of consumption. When you do this, current Chinese port stocks of iron ore are marginally above a 4 year average ratio of stocks to consumption.

    A watch point? Yes. Time to slit your wrists? You first.

    • In fact, CISA reports “China’s crude steel output hit a new record high of 2.05 million mt/day over the first 10 days of May”, some concerns that production is ahead of pace on demand may be warranted. We’ll have to wait and see. Wen has recently reiterated intention to boost construction of affordable housing along with other infrastructure projects.

      Anguish and potential despair are the preferred bedfellows of many here at MB.

      Won’t be slitting my wrists anytime soon!

    • I just looked at the longer term iron ore prices in the resources links for the first time ever.

      It appears to show that vast majority of the price growth in iron ore over the past few decades has ocurred post 2008 stockmarket crash, with the surge starting around the time China implements a stimulus package two-thirds the size of the Australian economy. Over the 30 years ultimately charted, the pace of growth looks much, much steadier.

      The size of the growth implied could be somewhat misleading since it doesn’t appear to say if the price growth is nominal or adjusted for inflation – but even if it isn’t, it looks clear to me that current prices have been massively boosted by a giant fiscal stimulus intended to stave off the GFC, which greatly boosted steel demand.

      So my question here isn’t a doom and gloom one of whether China will crash in a hard landing as such – my question is simply: can the pace of steel demand growth and prices continue to be sustained without ongoing waves of stimulus?

  3. “some large component of Australia’s export boom is shriveling in the wind as the waters recede.”

    Thanks. Now I’ve got the image stuck in my head.

  4. Some interesting stats there. Over the first 5 years of the resource boom, nominal prices (I assume that’s what they are) slightly more than quadrupled. Then comes the GFC and the huge Chinese stimulus and prices then go on to triple – but it only takes two-and-a-half years!

    No wonder the mining barons have been such happy chappies and no wonder they’ve shown that they’ll spread fear and misinformation to protect those juicy gains.