But much worse is in the pipeline. Chinese property sales by floor area were down 60% last week. Starts were only down 21% in Q1. Q2 is going to see a dramatic deceleration.
The market is hoping for a property rebound that will not come unless OMICRON and the strictures of “common prosperity” are lifted and neither is.
Each 10% fall in starts is the equivalent of 40mt of steel output or 60mt of iron ore not needed.
A reasonable estimate is another 20% fall in starts before any imagined recovery can take hold and there is no saying when it even will.
Even with Ukraine war and infrastructure stimulus offsets, the Chinese ferrous market will swing into a major demand hole in Q2 and H2.
Then you must add that the Q1 iron ore price rally was very supported by inclement weather inhibiting supply and with clear skies ahead the big miners will ship their butts off to reach volume targets. In particular, Vale’s Q1 was a write-off and it will have to lift its annual production and sales by an annualised 80mt to reach the bottom of its target range.
In short, were it not for the weather, and commodities mania inflating apparent demand, underlying steel demand would already have iron ore trading $100 lower and those fundamentals are getting worse by the day.
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.
