The ferrous complex was blasted lower on July 30, 2021 as spot was thrashed, paper was limit down, but steel firmed:
The chart:
The correction is happening for three reasons:
- Chinese regulatory clamps to slow steel output.
- Falling demand growth as Chinese property and infrastructure slow.
- Increasing global supply.
There are have been three episodes of $100 corrections in the iron ore price in the past decade: 2008 in a few weeks, 2012 in a year and 2015 over 18 months.
My probability cases for this very likely -$100 correction are:
- 45% base case it takes one year.
- 20% risk case it takes 18 months.
- 20% risk case by year-end if an Evergrande shock delivers a disorderly developer shakeout.
- 15% tail risk case of higher prices on another Brazil shock.
One way or another we’re very likely going down and it will get worse in Q3/4 this year.
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.
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.
Latest posts by Houses and Holes (see all)
- Australian dollar rides the energy panic - September 28, 2021
- Foreign students to return but not Chinese - September 27, 2021
- Never invest in China exhibit #3455 - September 27, 2021
YOU MAY ALSO BE INTERESTED IN
Why infrastructure won't save China
For much of this year, we have heard the bullish
Goldman throws up its hands on Evergrande
Goldman with a note that blows up its own 'long
Daily iron ore price update (charge of the mining losers)
The ferrous complex was still enjoying its bear
China's $60tr property monster "frozen"
Wall Street spruikers are steadily narrowing