Daily iron ore price update

Here’s your overnight ore complex action:

Looks like the bulks got their Chinese data bounce one day early.

In other news, I mentioned this yesterday but it’s worth repeating. Marius Kloppers has declared the end of the boom:

In the 10 years or so that have passed since China first came to the fore as a commodities demand force, two things have happened:  First, steel intensity per unit of GDP in China surged as early stage infrastructure and construction was required. This has now peaked, and we expect it to progressively decline as we have seen in historical examples. Put simply, this is a lead indicator of the progression of the Chinese economy toward maturity. However, we will continue to see per capita consumption of steel growing, albeit at a slower rate, as steel intensity of GDP declines.

And secondly, as the industry matured it has progressively improved its ability to supply the volumes to meet demand. As a result, the ‘supply shortage’ has largely been filled, or is well advanced in being fulfilled. Therefore, what we are now witnessing is the rebalancing of supply and demand and a progressive recalibration of prices back to long term sustainable pricing levels. In effect, what this means is that the record prices we experienced over the past decade, driven by the ‘demand shock’, will not be there to support returns over the next 10 years.

What we can instead expect is demand growth at more predictable and sustainable levels and more moderated pricing. This ‘mean reversion’ in prices and returns is something we at BHP Billiton have anticipated for some time.

If the last six months qualifies as “some time” then sure. Before that it was all go,go,go iron ore production. And of course, Martin Wolf added his voice yesterday:

He told the audience – including James Packer and Fairfax Media chairman Roger Corbett – that he expected commodity prices to come off, not least because of the “colossal amount of investment” in new supply.

The decline would also be “partly because Chinese growth will slow, and partly because the extreme commodity intensity associated with the biggest investment boom in the history of the world will slow”.

“The whole pattern of commodity demand in the next 10 years doesn’t look like the last 10 years, even if India continues to grow. I’d be really surprised if real commodity prices didn’t begin to fall, particularly from a peak previously only reached in the 1970s.”

Exactly.

David Llewellyn-Smith
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Comments

      • Good morning, I recognise your relief – thanks.

        Forgot to add, as I have said before I think Vale have made some ‘unusual choices’ and would not be surprised to see them lose more market share into the future.

    • dumb_non_economist

      Jeeze 2d, you’re certainly very flexible. By god the smile on your avatar says it all, you’re going to need surgery to get that tongue out of your cheek.

  1. General Disarray

    Bill Evans is making some big calls on commodities. 30% gains across the board with Chinese growth bouncing back.

    • Did Gail invite Bill for lunch and slip in some powerful stuff when he wasn’t looking??

      Cautious Bill has suddenly morphed into Punter Bill – he is betting big on Sydney property prices and commodities.

      • ‘Did Gail invite Bill for lunch and slip in some powerful stuff when he wasn’t looking’

        Are you saying that the little blue pill has given him a lift…

  2. The big unknown is how much the new Chinese Administration will stimulate. The very big variable.

    We are now in that waiting period to see how our future will pan out. 31dk is right, miners are busy re-structuring for the obvious changes in conditions. That process and bringing in new investments (as well as making existing project plans viable) could be enhanced with Govts being a lot more accomodative with regard to pro- resources policy. As opposed to looking at the resources industry like a pack of vultures.

    Digging up dirt is as legitimate a business as any other. The problem is Aussies are card carrying cargo cultists in addition to a gambling nation. Speculation is in our genes. So the easy out here is Housing , a horse we have backed and won with before. When so much more is possible TPTB are feeding us what we have come to expect.

    • 3d1k is not right. About anything. There is no such person. He is hired to distort the debate. He is a paid for agenda.

      As for your other conclusions, yes, we need to deflate costs. Not just for mining, for the entire tradables sector.

      What vultures? Miners do not pay a fair share of tax now.

      • HnH,

        We all have our “agenda”. You, me , all of us.

        31dk has to stand on his arguments, be what they may, just like any other contributer. The paid for side of things matters squat if the contributions are not worthy. People shouldnt be so easily swayed in any case.

        Agreed wholeheartedly on the costs reduced on the entire tradeables sector. How about some more commentary then on why the demand to impose costs is so prevalent, and ideas on how THAT can be reduced substantially? Not looking for a redistribution mind- I mean real nett cost cutting all accross the board. In spades.

        Yes, vultures. Great big freaking scavengers looking for an easy meal. We can’t live in the bloody past now. The boom is ovah, the mistakes are cemented in history. We need to be looking and acting for 10 years out and wisely utilising ALL the levers we have to make our economy more diverse and Productive.

        Starting with getting this Gorilla of Govt costs and dissincentive off our backs.

        • The paid for side of things matters squat if the contributions are not worthy.

          I disagree. If he’s paid to post here it means a) he has more time to post more often than anyone else, and b) he must tow the mining industry’s line, can concede nothing, and has zero flexibility.

          Consequently every mining-related thread at MB gets smothered by comments from 3d1k that are unrelentingly pro-mining. That is the very definition of astroturfing and it diminishes the quality of the debate here.

        • darklydrawlMEMBER

          I like reading 3d1k’s posts, even if I don’t always agree with them (and I mostly do).

          Why? As I am always happy to hear many sides of a story and a huge part of the value of this site is it allows for alternate voices, so long as they ‘play the ball and not the man’. Trolls are boring, but a new angle is not.

          Mining has played a huge role in the Aussie Economy almost from Day 1 – For example, Look at what happened to SA back in the late 1800’s during the Victorian Gold rush. See how that impacted their economy as all the skilled miners left the Burra et al for the Gold Fields to the south east.

          Look at how grand the building in Melbourne, Ballarat, Bendigo are, and compare them to Burra. That is the power of mining.

          Australia would look very different if the early settlers found easy gold north of Adelaide, rather than copper.

          Mining (like it or not) has also saved Australia financial butt over the past 5 years.

          I can’t speak for all, but if MB even becomes ‘one voice’ as all the other opinions are shut out, you will lose so much of what makes this site interesting and valuable, along with many readers too I suspect.

          So long as 3d1k’s and others posts are supported with evidence, I am more than happy to listen and be swayed if their point is solid and valid.

          Keep up the good work all of you.

      • HnH, of course I’m a person. Jeesh, you didn’t believe all that Minebot stuff did you?

        No astroturfing here mate. Assertions of such a neat diversionary tactic employed by some to undermine (pun intended) my views.

        Cheers.

      • Mav,

        I suppose this is being ammoral, but NOT listening to what Kloppers is saying about resources might do for a non-investor/spectator but it surely won’t do if your working on your future financial well- being. It doesn’t mean taking his every word as gospel but there are important things to learn from what he is saying- or not saying.

    • So in summary the plan is:
      1. Hope for chinese stimulus.
      2. Angle for future government subsidies/handouts/ free passes.
      3. Look at trimming around the edges, cutting some of the obvious current excesses.

      …what could possibly go wrong

      The problem is there has not been any serious restructuring and there is very little they can do that isn’t going to be very painful. The big miners in particular, despite their recent comments, seem particularly complacent and are going to have to seriously change how they operate in an effort to recover some efficiency.

  3. Terminal? Hmmm – it may not be terminal for the industry as a whole, but from where I’m standing it’s certainly looking that way for not insignificant numbers of jobs in the industry.

  4. Hmmm … I clocked it at 9/40 comments on yesterday’s resources thread (22.5%) and at this point it’s at 8/35 (22.86%) on this thread. I think I may have backsolved one of its KPIs….

  5. For those interested:

    Chinese GDP (Jan-Sep): 35.3 Trillion CNY
    Gross Fixed Asset Investment: 25.7 Trillion CNY

    That is an gross-investment to GDP ratio of ~73%.

    This is continuing with FAI growth at 20% and GDP at 10%, both nominal.

    Can any qualified economist comment on what this means?

    Given this level of investment, is it not possible that this component might suddenly stop growing? What does this mean for iron ore prices, coking coal prices etc?

    What if this component actually shrinks dramatically because less or no new investment is needed? I think the word “economic depression” might not accurately capture the possible consequences.