The doom of iron ore

Via The West:

China could slash its iron ore imports 40 per cent as its Government winds down its stimulus of an overpriced housing sector, which would have disastrous consequences for Australian iron ore producers, a conference in Perth was told yesterday.

J Capital partner and iron ore and steel analyst Tim Murray said China’s annual iron ore imports could fall from about a billion tonnes now to about 600 million tonnes in as little as five years.

He said predicting such a quick decline was not a common view, but other research had predicted the same fall but over 10 years.

Mr Murray said the reduction in the volume of Chinese imports would also cause a big fall in the price and hit Australia hard.

“Well, we’re the biggest supplier to China, so we’ll be the biggest loser. It’s obvious,” he said.

…Speaking on the sidelines of the Global Iron Ore and Steel Forecast Conference in Perth yesterday, Mr Murray said monetary stimulus had rapidly driven Chinese property prices beyond the reach of many buyers.

“The Government is determined not to let property prices rise and has a very clear statement that houses are for living in, not for investment,” he said.

Mr Murray, who lived in China for 19 years, said flatter property prices would reduce construction, and therefore steel use.

He said infrastructure construction would not replace the property sector’s reduction in steel demand.

It used less steel and in many areas China had enough infrastructure, and in some cases too much.

Mr Murray said importers would mainly feel the reduction in iron ore demand as most Chinese miners were State-owned and the country wanted to maintain a degree of self-sufficiency.

…Mr Murray said an escalation of the trade dispute between the US and China could hurt Chinese export volumes and its demand for steel.

The Sydney-based analyst said while some predicted the iron price would rise to $US100 a tonne, he thought it would stay in the $US80 to $90-a-tonne band for some months and slide later in the year.

…Another trend that will reduce Chinese iron ore consumption is the increasing amount of steel made from scrap using electric arc furnaces.

Mr Murray said this would take some time to have a significant effect as large amounts of scrap may not become available until buildings built in the early days of the property boom in the 1990s are scrapped.

Give that man a cigar! That’s my view, more or less, as well. Though I don’t see Chinese authorities giving up on the housing market so much as stimulus efforts trapping Chinese development in a declining productivity bog in which stagnation never ends.

Moreover, there is evidence that it is already underway. Despite record levels of building activity, plus OBOR, Chinese iron ore imports looks very peaky:

I am more in the ten years than five camp but the fate is unavoidable with the end point at $20 iron ore.

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