Daily iron ore price update (bear stampede)

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Find below the iron ore price table for March 4, 2013:

Whoa. Nasty fall in 12m swaps! The backwardation in that market is deepening on the well deserved medium term gloom.

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In broader news, honestly, has there ever been a more hated rally? Now we even have Australia’s mining-happy major business paper running dire forecasts for iron ore, as well as one of the major miners. Can my influence be so great? From the AFR comes Andy Xie:

“I think a lot of shareholders in these highly leveraged miners will lose everything – in the end, creditors will take over these projects… I think it could go to 50-something . . . you need it to go low enough to convince [higher-cost] Chinese producers to abandon production. So much money has been poured into the property sector,” he said. “But the banks are rolling over the old loans so you have all these empty buildings but not many people going bankrupt. I think the Chinese leaders are concerned.

How could that justify a big boom in steel demand? This view that China will keep growing because China’s per capita stock of steel is still much lower than in the US – this is totally wrong. Chinese people are squeezed together in big cities. So the per capita stock of steel will be much more like Japan than the US.”

The hand-wringing is the result of the weekend’s property curbs of course, which yesterday the papers mistakenly ignored. But even before that, Rio Tinto’s chief economist was out predicting $100 iron ore by year end on rebounding inflation (find it below).

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Is there anything of value here? There’s little analysis here to pick over. It’s just as couple of sound bites from credentials, usual MSM fare. But as you know I agree with the bearish medium term case. Xie is right on two counts. His long term projection for ore is $80, which is the same as mine. And the reasoning of the price dropping well below that to knock out high-cost producers is also sound. This is the volatility one should expect in a market with a steepened supply curve.

As for timing, the one interesting chart in the Rio presentation is on Indian supply:

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With due respect to Rio, this is WAY higher than the data I get from Bloomberg which has the peak of India supply around $100 million tonnes. It comes from port authorities too so go figure. This would have to rebound substantially to deliver Xie’s dire forecasts in the next year but be aware that FMG alone is adding 100 million tonnes this year, enough to replace the entire Indian market for last year.

The one thing you can take to the bank from the angst is that volatility is guaranteed. The way for Australia to cope with that is to smooth income flows and government receipts using a big mining tax and an SWF. Nah, dumb idea. 

(P.S. Legume, leave your money on the fridge)

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130304 Economic Outlook and Commodity Prices

About the author
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.