Find below the iron ore price tale for March 9,2013:
All green. Looks like for now iron ore has weathered the poor news flow.
The news today is bad again but of a different kind. For many years I’ve laboured in the wilderness aiming to bring to light the importance and vulnerability of iron ore for Australia. Just occasionally I have a win in the MSM when I seed stories to MSM journos via my posts.
Let’s not make too big a deal of it but today I am sad to say that the loon pond that dominates Australian business media commentary has discovered iron ore and the result is an unhappy one.
I rarely read the AFR’s Jennifer Hewitt any more. She writes lovely prose but her stock-in-trade is remarkably repetitive – Labor is evil – so what’s the point? I can tick off her article each morning without having to waste my time. Yep, Labor is still evil, thanks Jen.
But this morning Ms Hewitt has ventured farther afield, wowed at the Baio Forum by the FMG’s Nev Power:
What really interests Fortescue’s chief executive is that China’s urbanisation level is now only about 50 per cent. When urbanisation increases, so does the demand for steel. As President Xi Jinping repeated in his opening address to the Boao Forum, the Beijing leadership is determined to improve living standards for all of China’s people. That requires greater urbanisation, hyper-accelerated China style, and a need to keep economic growth at about 7 per cent to 8 per cent a year.
As Power sees it, that means the demand for steel will keep growing at about 3 per cent to 4 per cent a year.
That’s where Nev Power sees demand. A bit of ahead of me but not by much. But on supply, Hewitt’s recycling of the Power view becomes laughable:
Nev Power…says analysts go wrong by looking at the announced expansion when only about one third of this ever comes to fruition – certainly in the announced time frame.
According to Power, this ignores experience on the ground. It also ignores the reality that if the price falls, more domestic mines in China go out of production because they are more expensive to run. That results in what he calls a natural balancing effect. India has also taken its 100 million tonnes of production out of the export market.
…“There would have to be massive new supplies – 300 million to 400 million tonnes year – to get it to $100,’’ Power insists.
300-400 million tonnes to get it to $100? In what time frame? Morgan Stanley is currently forecasting 700 million tonnes of expanded capacity over the next five years.
Of course, Nev Power is right on another point. Much of this production will never happen (see today’s mining post). But not because of “experience on the ground”. Prices will tumble and squeeze much of it out, including, possibly, that of FMG. That’s what happens in a “market”.
Sadly this reporting is symptomatic of everything that has gone wrong with the loon pond takeover of Australian business media. Focused entirely upon the interests of one company it completely loses its raison detre which is to defend private markets from the interests of just such individual companies.
This is what happens when you spend your time gettin’ high with captains of industry at posh events.
