Beijing warns Canberra it’s going to crash iron ore

The ferrous complex continued its recent deflation yesterday as the shock of Chinese environmental challenges and a higher US dollar hit the market. Spot was hit. Paper fell sharply though rebounded overnight. Steel was stable offering better margins and therefore ongoing raw material stocking. So the world is not yet falling apart here:

So, we have begun the great deflation but I do not expect it to get serious before May. That conviction is boosted by the repair to Chinese steel mill margins we have seen in recent weeks.

That said, cometh it does, right along with yet more iron ore, at Argus:

Australian mining firm Mineral Resources (MinRes) has begun production at its 5mn t/yr Wonmunna iron ore mine in the Pilbara region of Western Australia (WA), as it seeks to boost its sales from the region to 14mn t/yr rate by the end of 2021.

It will keep on coming with prices so extreme.

More interesting today is the politics of iron ore. Beijing is clearly confident enough that it finally has the formula to crush the market following the trade war on itself that spiked prices. CCP mouthpiece, Global Times, is cock-a-whoop:

  • Iron ore will fall further as Beijing tightens environmental controls.
  • The boomlet has covered over the pain from Beijing’s trade war on Australia.
  • But soon the pain will come and Australia will be forced to kowtow with structural changes to the economy.

Presumably, that means acquiescence to the fourteen conditions that end democracy:

Which will get no hearing whatsoever:

As iron ore falls away, and inflation dies with the income shock, ever more monetary easing will drive higher house prices and a lower Australian dollar in order to diversify away from the Chinese bully.

David Llewellyn-Smith
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Comments

    • Ronin8317MEMBER

      After spending the better part of last two decade killing Muslims in the Middle East, now the West wants to champion their human right. I guess since nobody champion the rights of Palestinians anymore, they need a new group of Muslim to ‘protect’..

      The West needs to get serious and rescind the ‘One China’ policy once and for all.

    • Asia is now far wealthier than the traditional west. China will start slicing and dicing up the west with preferences and thats it – chicken dinner.

      • People keep banging on about the demographic challenges in China, but look at the West:

        Aged baby boomers about to hit retirement, a drain on society for another 20-30 years
        Depressed, houseless, locked-down woke millenials in the middle
        Non-Western Migrant underbelly below that

        • Frank DrebinMEMBER

          The Millennials will be fine, the new arrivals share their passion for Western notions of equality, social justice and the rights of the individual over family/community.

          Don’t they ?.

          • David Jonstone

            Australia, like many western nations was forged in the steel furnace, wars, drought, convict slavery, sheer brutality and everyone worked together to forge an equitable life for everyone – sure there was plenty of cream but they shared good fortune.

            Now its 100% Americanized and every single mad for himself in dog eat dog shizen fight.

            The only people we have attracted are those who are in it for the quid – no one comes here to help make Australia great – to fix its problems – its a 100% self serving act of greed.

            Its all good when there is plenty to fight over – but as the pie dwindles and the mouths multiply rest assured there will be far worse than Cronulla.

            Look to the United States, France, UK to where our “migrant” future lies as the slices grow thinner.

      • Someone ElseMEMBER

        Strike me Roman, a bamboo-turfer with the ol’ cut-and-paste ‘yay China, number one, top dog!’ cräp turned up. Is that you Em-dash?

        One more time: China is a fizzer. Amongst the litany of advantages the greater west has, the most important is what china will never have – food security.

        P.S. If you’re gunna pretend to be a native english speaker, at least get the idioms right. :-;

  1. DingwallMEMBER

    Lucky we have a diversified, resilient, economy house flipping society to fall back on

  2. TailorTrashMEMBER

    “forced to kowtow” and if iron ore can’t do it we have other methods
    Well at least we know what the purpose of all that friendship really was .

  3. pfh007.comMEMBER

    “..As iron ore falls away, and inflation dies with the income shock, ever more monetary easing will drive higher house prices and a lower Australian dollar in order to diversify away from the Chinese bully…”

    Keep in mind that the monetary lunacy of QE and TFF that the RBA is engaged in depends on the enormous Chinese appetite for high priced iron ore.

    Without that fan driving the AUD towards the moon the RBA would be much less confident about debasing it and for such a lame brained objective of goosing asset prices.

    As much as upper middle class Australia loves an asset price bubble they certainly like cheap imported goodies as well.

    Don’t assume that the politicis of an AUD sliding toward the floor and the prices of cars and everything else we love rising will be welcomed in Canberra.

    And if we actually slide into trade deficit and CAD territory there will be a need to attract capital from offshore.

    China may be about to impose on us the discipline that we seem incapable of imposing ourselves.

    What is the interest rate in Brazil at the moment?

    It was hiked from 2% to 2.75% at the last meeting.

    “..The Central Bank of Brazil unexpectedly raised its benchmark interest rate by 75 basis points from an all-time low of 2 percent on 17 February 2021, above market expectations of a 50-bps increase. The decision was unanimous. The Committee said that the continuing increase in commodities prices, measured in local currency, are affecting current inflation and triggered additional increases in inflation forecasts for the next months, especially through its effects on fuel prices…”

    • “China may be about to impose on us the discipline that we seem incapable of imposing ourselves.”
      I friggin hope so tbh. Unless this once-OK country gets a a damn good crisis, the grass roots can’t and won’t change.

    • World of hurt coming our way. Can we top this?

      The NSW floods
      Nonexistent bushfire recovery
      COVID lockdowns and border closures
      end of JobKeeper
      iron ore price crumbling
      massive private debt
      rising interest rates
      escalating trade war
      Government money mostly to the top end of town
      Mortgage and insolvency holidays end

      Did I miss something here about our growing economy?

      • The Travelling Albatross

        Rising house prices!! Nothing more important to the plebs so all what you said wouldn’t register on their radar

      • innocent bystander

        * supply chain disruptions
        * rising prices on materials coming to a house being built near you.

        • Not blinking………. purposely ramping all that feel good immigration that the millennials love, but will drive a final stake through their measly job , and house purchase expectations

  4. Would inflation die from an iron ore income shock? Why not inflation spiking due to AUD collapsing alongside iron ore? You’ve said yourself the actual income transmission from iron ore is weak these days

  5. Steel mills in China have been mandated to cut quotas – hence steel prices up and iron ore demand down.

    There are MASSIVE cuts coming to iron ore purchases and prices will resume their “traditional” falls within the week.

    China has also just opened mines in Zimbabwe and Sierra Leone with the SImandou mine put on “war footing” and will now be full operational by 2025 with shipments already coming out.

    Compress your timelines people.

    • Someone ElseMEMBER

      Simandou open by 2025? The same Simandou that was going to be open by 2013? The one that has to ship around the Cape (10,000+ nm & ~45 days) instead of from the Pilbara (2,500 nm & 10 days)?

      And that’s before the corruption and unrest.

      • My guess is they are a little more focussed than 2013, and they will pay whats required to achieve an alternative supply, and control.
        Not to say it will just work that way

        • Someone ElseMEMBER

          They can focus all they want. The sovereign risk is off the chart and a 400km (?) haulage line from mine to port is a lot of risk.

          Look at the goings-on at the Freeport operation in West Papua, and all their ‘security’ issues caused/solved by bribing the local police and army. And they only have move gold concentrate down a couple of pipes.

      • David Jonstone

        It was owned by Rio and an Israeli who was refusing to develop it. A chinese consortium approached them and they literally cancelled their mining lease – court battles ensued and the Israeli and Rio lost their lease and were compensated somewhat.

        That all ended in 2019.

        Try and keep up, but more importantly try not to let your blathering bias step on your tongue as you pull that gumboot from your flailing lips.

        • Someone ElseMEMBER

          Hold your horses there champ. The mine is owned by Guinea, and Rio (and their chinese backers) and the Israeli diamond seller just traded bribes to see who could dig it. Pounds to pennies it’ll change hands again. Spot me $10m and I’ll get the lease cancelled myself.

          You’re funny. What’s the Social Credit Score payment for bamboo propaganda? I’m asking for a friend..

    • Someone ElseMEMBER

      ‘War footing’ is more accurate than you intended. Look back at the great power competition of the late 19th century and substitute ‘China’ for ‘Germany’ and ‘USA’ for ‘UK’ and you have the general outlook.

      China/Germany needs access to resources and wants an empire but the best of the world is already carved up, leaving only the leftovers.

      The USA/UK controls world commerce, most pointedly the world’s trade by controlling the oceans.

      China/Germany has very limited access to the world’s oceans and their access is at the USA/UK’s convenience because their access is bottled up in the Baltic/South China seas.

      China/Germany goes on a massive armament binge in the hopes of breaking out.

      Is India the new France? I dunno, but Russia is still Russia.

      And then..?

  6. How is a crashing AUD and a deflationary shock gonna work ?
    We import most things and what we dont import , we import enough of the neccesary inputs to cause inflation.
    NO not wage inflation we will be importing enough workers to stop that.

    • David Jonstone

      Deflation in ore price.

      Yes you are correct this will translate into MASSIVE traded inflation through currency collapse.