Looking at the marginal producers, to do series harm, you’re going to need an ore price at best of $120 over the medium term. And I would suggest lower is more likely given subsidies will happen to some extent. The moment you go higher, there’s plenty of expensive material ready to pour back into the market.
With the price already at $110, $120 is hardly a boom and it is the best case.
My best guess is that the current round of Chinese stimulus will support the ore price for the next half year or so. But each of the next three years brings more new production capacity to market and negligible growth in Chinese demand. Ore is in surplus, sorry.
There are two things that can turn this around. A new Chinese mega-stimulus. Or, a sizeable reduction in seaborne iron ore production expansion plans. It will be the latter in my view. But that also means the boom is over.
If iron ore gets anywhere near $130, I’m going mega-short the obvious player.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.