Via UBS’ Glynn Lawcock:
BHP painted a not too rosy a picture for the global economy saying it thought the business cycle had peaked with autos and semi-conductors putting a big hole in Europe and Japan growth while China policy is only helping to offset but not add to growth. Essentially BHP pointed to weak confidence due to Brexit (Europe) and political uncertainty (trade war) in Asia. The Fed easing was singled out as being important in that it helps emerging markets with balance of payments & India is now cutting rates.
BHP stopped short of saying exactly when China would hit peak steel, choosing to say that it was plateauing and would peak sometime in the 2019-2025 timeframe. One Belt One Road (OBOR) was seen contributing to 1% pa growth in Chinese steel demand while domestically demand is flat. BHP estimated the scrap to steel ratio in China at 22% today, rising to somewhere between 33-60% over the long term. This is important for iron ore demand and while there is 30Mtpa of elastic iron ore supply in China that has come back on due to high prices, the low quality high cost producers in Australia and Brazil are the marginal players who will drive the long run iron ore price.
