Iron ore hit as Chinese stimulus a “Western narrative”

Iron ore and steel future firmed yesterday in Shanghai and Singapore but flamed out in Dalian:

A little note by TD Securities sums up my view neatly:

The Politburo statement’s omission of the mention that ‘houses are for living, not for speculating’ has catalyzed a notable rally across base metals, even as the communiqué offered little additional information to State Council communications. While the boost in sentiment is triggering large-scale algo buying activity in copper markets, we see reasons to be cautious. The omission of this statement has occurred in past years (last in 2019). And, while analyst expectations were fairly pessimistic, we see evidence that commodity demand expectations have notably risen leading up to the meeting. This was potentially associated with a rise in speculative positions in the West, whereas Chinese traders in Shanghai have been heavily liquidating their length across the base metals complex. Further, the top traders in Shanghai hold little conviction and speculation ratios in SHFE markets are near multi-year lows, which suggests that optimism on Chinese stimulus may be a Western narrative. Still, a break beyond $8800/t risks sparking further algo buying activity.Ultimately, property sector easing is still likely, but the scale of easing is key to gauge whether it can offset structural woes driven by homebuyer confidence, local government debt and structural issues such as slowing urbanization and demographics.

At Bloomie there is more texture:

In a recent meeting with property developers and builders, Minister of Housing and Urban-Rural Development Ni Hong called for homebuyers who had paid off previous mortgages to be considered as first-time purchasers, the official Xinhua news agency reported Thursday. Up to now, buyers who have a mortgage history but don’t currently own a property are subject to higher down-payment rules.

…The ball is now in the court of the banking sector. Earlier this month, financial regulators already stepped up pressure on banks to ease terms for property companies by encouraging negotiations to extend outstanding loans. The People’s Bank of China and National Financial Regulatory Administration said in a joint statement July 10 that the aim was to ensure the delivery of homes under construction.

That seems right. More completions rather than any recovery at the top of the funnel.

Developers main source of liabilities is unfinished apartments:

Thus this:

And where will new buyers come from?

It’s over. China is ex-growth on steriods.

The only question is when does steel demand fall far enough to crash iron ore?