Err…shouldn’t we be saving the last iron ore boom?

Iron ore is off and running with spot above $200, paper still going higher overnight and steel out of control:

How high we get now is anybody’s guess. Post-Q1 seasonal supply is yet to rebound:

It should roar higher than 2020 in short order. Just as Chinese seasonal weakness hits in May/June owing to southern rains limiting construction.

Even so, we’re now into some kind of wild blow-off phase of panic buying and hoarding as the entire context of Australia/China relations collapses. Chinese port inventories are still only moderate so if mills get spooked and restock then prices could do anything in the near term.

That said, I am unmoved about what comes shortly afterward as supply returns and China slows. The higher we go, the further we will fall.

More broadly, recently Kevin Rudd revived his long-dead idea for an iron ore super profits tax. It was greeted with the scorn it deserves. Not because it is a bad idea. On the contrary. Because the notion of it getting up under the corrupt Morrison Government is absurd.

Yet, when we place the idea in context, it is not only compelling but essential. How so?

Without a doubt, this is the last Australian iron ore boom. Ahead are earth-shattering headwinds for Aussie iron ore prices and volumes:

  • The Chinese development model is running out of puff as urbanisation is well past its peak. Ahead is slower and less commodity-intensive growth forever.
  • Climate change mitigation everywhere, within China in particular, will shift steel production dramatically towards scrap inputs.
  • Australia’s China divorce has now turned violent. At the very first opportunity, China will dump Aussie iron ore. The worst case for China is five years as it develops Simandou. But it may pull the trigger earlier with draconian market interventions.
  • Finally, if China does seek to annex Taiwan, that will end the iron ore trade permanently.

In short, Australia is now embarked upon a course of iron ore sector doom. One way or another, and probably via all paths, China is going to end its Downunder iron ore dependence in the next few years.

Obviously enough, in the name of fiscal sense, intergenerational equity and economic stability, Australia should be taxing the living shit out of this final boom and stuffing all proceeds into the Future Fund or similar offshore.

Yeh, nah. Bid that house, matey!

David Llewellyn-Smith

Comments

  1. Arthur Schopenhauer

    Exactly the same pattern with gold, from 1850s to 1880s.

    Trading commodity for imports with the surplus going to RE speculation.

    The echo is so strong it may as well be a reflection.

    https://megaphone.link/DMN5803963891 (Marvelous Melbourne episode)

    • Grylls and Rudd were bulldozed aside, for daring to question 100% flat-to-the-floor iron ore exports, with pennies left for the colonies. After Juukan Gorge, the first three departing Rio execs were rewarded with $40m. Welcome to Australia.

  2. DingwallMEMBER

    Or they will bring it in, in the classic Australian leadership style ie doesn’t matter if its Lib or Labor and way too late, only to watch IO plummet and the “super-profit” trigger point never to be breached again.

    • SpunkyMEMBER

      Way hay and up she rises
      Way hay and up she rises
      Way hay and up she rises
      Early in the morning!

  3. BrentonMEMBER

    We’re seeing massive moves in a bunch of industrial commodities.
    Monthly moves:
    Copper +13.72%
    Iron Ore +11.64%
    Lead +10.89%
    Nickel +7.08%
    Aluminium +11.86%
    Tin +16.67%

    Either the roll-over in Chinese credit needs to start to drag at these commodities, or we may very well be seeing a shift in global demand.

  4. OsirisMEMBER

    So, we’re still pulling the iron ore tit of the chinese cash cow yeah ?

    • DingwallMEMBER

      If you can picture a 27yo child still living at home and firmly clamped on …. then yeah

  5. Slap a 10% tariff on it and earmark the funds to buy Virginia class attack subs…

    • surfbeach2536

      A few years ago when I argued for protectionist policy to support our industry I copped a bagging, but how sensible does such a policy appear now. DLS keeps mentioning the downside coming for retaliation for exports but the bigger issue not mentioned and that will take years to address is Australia’s reliance on Chinese exports.

      What happens when China’s next move is export embargoes.

      • Export embargoes on certain goods, maybe – but their economy is so frightfully export dependent that they could cause all sorts of internal problems, as well as cause a chain reactions from the rest of the world acting further, with further industrialisation, etc

  6. I don’t really see where China is going to get the ore it needs. Yes, scrap will rise over time, and Brazil might increase output, but good luck with Africa. Look at Zambia. China has spent a fortune trying to get copper there, its Zambia’s key export, 75%, the Chinese have plowed their own people in and it’s a mess and copper’s price goes from the bottom left to top right of the screen.

    • Failed Baby BoomerMEMBER

      Peter,
      I have family on the Zambian copperbelt and I have visited there periodically.
      I am not sure I agree with your thesis. China has purchased going-concern copper mines from the Zambian Government (previously nationalized from Anglo American and other western miners).
      The mines have well developed infrastructure and facilities. Sure they need ongoing development and deeper mining but it is still economic and profitable at high copper prices. The Chinese hardcore management style has not been accepted by the locals and there have been strikes and bad press.
      The Canadians have done very well with new mining operations at Kolwezi. Glencore had a mine in the copperbelt for a while, but they pumped and dumped their assets back to the Zambian government.

  7. DingwallMEMBER

    This euphoria of everything is starting to feel way out of place……. Roy Morgan jobs great apparently, real estate ripping stupidly high, economies around the world apparently are powering, stock markets are BTFD at any cost, metals/lumber/oil all going ballistic, etc etc ….. and yet the central banks around the world are not backing off any levers and are, in fact, suggesting amidst all this growth and great outcomes that they must remain accommodative and effectively pump the pump. Yellen spoke some real truths but was immediately hauled over the coals and had to “clarify her comments” mild though they were.

    6 months ago you could say things were finely balanced but now they have the opportunity to start chipping away and back off in a controlled manner ……………. but they are avoiding it like the plague.

    They need to start backing off and let the usual sh!t happen. Zombie companies need to die, speculators need to get burnt or rewarded (not never get burnt)……………

    • DingwallMEMBER

      So you suggest MB should review their assessment process to include future pandemics/world disasters as well as the concerted actions of countries/CB’s around the world to recover from these?

      • Only thing is, I don’t see a change of mind. I see a consistent claim of iron ore busting.

        So where exactly is the ‘change of mind’ that you speak of?

        • Of course I changed my mind. Many times, random troll.

          Have been bullish iron ore on many occasions over the past decade. Not least, most of last year when I mooted $200 far ahead of the market,

          Where I have been consistently wrong is the time frame for the structural change in Chinese demand which has gone on for many years longer than I thought it would.