China can crush iron ore prices this time

This is a dull comment:

That’s reason to be highly skeptical that Beijing’s plans to rein in the wild swings in the iron ore market will succeed. The government is developing a state-backed platform to coordinate all Chinese purchases of the steelmaking material, people familiar with the matter told Bloomberg News this week. In theory, that would give more bargaining power and stability to the country’s mills, which spit out more than half the world’s steel.

Good luck with that. In everything from metals to food, Beijing’s attempts to regulate the market prices of raw materials have more often failed than succeeded.

If collective purchases are what China had in mind I would agree. But is it that stupid? We’ve been there before and the system collapsed under pressure from both miners and steel mills.

But what if China’s goal for its mooted iron ore trading platform is, rather, an intelligence-gathering mechanism to track who is buying and selling every tonne of iron ore? If so, authorities will then have a real weapon to single out speculators for sanction.

There’s heaps of iron ore. All China needs to succeed in pushing prices down is to prevent a decent proportion of speculators from hoarding it. If they know who they are and where they live then it becomes a pretty easy exercise for a vicious tyranny to give them a shove.

China has both succeeded and failed with interventions at times. The relative outcome usually hinges on the underlying conditions of the market. If it is loose they can hit prices. If it is tight they can’t.

Right now fundamentals are very loose and a clever and ruthless intervention may well succeed unless they eventually stimulate too much instead.

Houses and Holes

Comments

  1. There may be “heaps” of iron ore but most of the good stuff comes from a single country….Australia.

    If ever there was a time for Australia to use its iron ore advantage it is now.

    We have been hearing about alternative sources from Brazil and Africa crushing our advantage for a decade now and our advantage remains.

    No wonder China is frustrated. They are trying to give us a slap but need still need our cheeky dirt.

    Never been a better time for a National Export Volume Auction.

    https://theglass-pyramid.com/2015/05/29/iron-ore-a-national-iron-ore-export-volume-auction-is-the-best-solution/

    Funny how a simple commodity like Iron Ore (the earth is mostly made of it) can remain a big money spinner for one country for so long. Free markets are supposed to stop that sort of thing.

    Free markets….. always less impressive than what the experts promise.

    • The best iron ore comes from Brazil’s Carajas (and if it ever gets going, its other limb in Africa, Simandou). But we do have the freight advantage. Indeed, despite Kloppers being a lousy CEO, his success with changing pricing to CIF instantly gave Ozstraya the freight differential which for last few decades has been huge.

    • We should be loaning Indonesia the money to build a modern smelter or 10.

      We all know we’re not going to make any here, so at least let’s make a better friend of our neighbour.

  2. The truth of the matter is the CCP is just plain dumb and have mismanaged the whole iron ore market for nearly 20 years. Paying Australia many $10s of Bns for what? 70 million empty high rise apartments, Xi is as dumb and arrogant as Putin

  3. For decades, Japan Inc bought cheap iron ore from Australia through a centralised buying mechanism and annual quotas, backed up by small equity holdings in Australian IO projects so that they could keep good data.

  4. Won’t they have some impact in that they will reduce the Chinese exchange bids to one from 100’s of individual steel mills. I don’t know how successful anyone has been in playing speculating games in the IO exchange unlike Glencore and copper for example.