Commonwealth Bank (CBA) director of mining and energy commodities research Vivek Dhar said the drop came as a result of COVID-19 lockdowns in China and what they could mean for demand of Australian ore.

“Markets are worried that Beijing in particular maybe exposed to more severe lockdowns, like what we’ve seen in Shanghai,” he said.

Mr Dhar expected the next few months would see “demand weakness” from Chinese steel mills, which would likely drive the price lower.

That looks about right to me. Chinese monetary and fiscal stimulus transmission is inhibited by the property crash and OMICRON so yesterday’s announcement is pretty meaningless.

Mills are still hugely overproducing steel:

But I suspect that this is because they know that severe curbs are coming in H2 in a repeat of last year. Steel inventories are not falling seasonally.

I still don’t necessarily see iron ore breaking down any faster than the broader commodities mania but that is coming anyway.

Not investment advice!

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Houses and Holes

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.

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