China prepares cold dish of iron ore revenge

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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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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.