Iron ore bubble popping


More bad signs for China as recent trends continue in equity, soverign debt and forex, confirming trouble ahead.

The CSI300 is not bottoming:

The ten-year yield is at its lowest levels since 2016 and all indicators point south:


CNY cannot catch a bid:

Steel and iron ore futures are threatening to break down from a head and shoulders top:


Bloomie has resurrected ghost cities:

In 1979, Deng Xiaoping drew a circle on the map around China’s southern coast and created Shenzhen, an experiment in capitalism, according to a popular ode to the former leader.

Nearly four decades later, Xi Jinping unveiled his own ambition for an era-defining city, this time perched on the outskirts of Beijing. Xiongan was billed as a gleaming, high-tech metropolis that would serve as a release valve for the crowded Chinese capital — “a model city in the history of human development.”

The ruling Communist Party has since spent some 610 billion yuan ($85 billion) on the city, more than double the cost of the Three Gorges Dam. On former cornfields now stand a train station, office buildings, residential compounds, five-star hotels, schools and hospitals.

Just one thing is lacking: residents. When Bloomberg visited on a weekday this month, a highway into the city was almost empty. In the city center, few shops and restaurants were open on streets lined with brand-new government headquarters, office buildings, residential compounds and hotels.

Ask yourself. Is the answer to the above to print money and build more, with private demand already in full retreat?

Or will that crown the folly with a Ricardian Equivalence collapse in private demand? I think so.

Reuters sums it up:


Mounting losses among steel mills as well as a lack of confidence at a time when Chinese authorities are typically not expected to announce more stimulus-related policies have put pressure on the upstream ore market.

“Weighing on the market are negative signs that steel products are piling up amid a seasonally sluggish season, steelmakers are suffering losses and there is no new fresh stimulus,” said Zhuo Guiqiu, a Shenzhen-based analyst at Jinrui Futures.

The iron ore bubble has begun to pop.

About the author
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.