Yesterday the ferrous complex was mixed as spot eased, paper lifted and steel fell:
The headwaters of iron ore demand are increasingly ruffled. The crunch in China Huarong bonds got worse with some bonds trading at 80 cents on the dollar and 2022 issuance trading at a yield of 35%. Moreover, there’s an awakening underway that Chinese SOEs are no longer a protected species:
- China Huarong is now under scrutiny from the always useless credit rating agencies.
- The $3tr SOE market is suddenly on notice that it does not have 100% state backing against default.
- The shakeout will continue so long as systemic risk is contained.
- There are moves to shift the public ownership of Huarong to an SWF which would be better placed to resolve debt.
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