SLL posts a lot of stories about the Chinese economy because its the second or first largest in the world, depending on who’s counting, and what goes on in China doesn’t stay in China. It’s the epicenter of the unfolding debt contraction, like the US housing market was last time. From Jasmine Ng at bloomberg.com:
Downturn in China’s steel consumption will weigh on prices
Low-cost mine supplies from Australia, Brazil set to expand
Iron ore ’s tumble back below $50 a metric ton may last for some time as the twin factors that put it there, rising low-cost production from the majors and signs of faltering demand in China, will probably persist.
“We do think the price will stay below $50,” Caroline Bain, senior commodities economist at Capital Economics Ltd. in London, said by e-mail. “The combination of the ongoing ramp-up in supply from Australia and Brazil and the downturn in China’s steel demand will weigh on prices.”
Iron ore’s latest descent below the $50 level, after spells there in April and July, follows production reports from Rio Tinto Group, BHP Billiton Ltd. and Vale SA that show further additions of low-cost tonnage, reviving concerns of a glut. In China, the biggest buyer, steel demand and production are shrinking and product prices are in retreat while exports surge, stoking trade tensions.
“Chinese demand continues to struggle,” said Jeremy Sussman, an analyst at Clarkson Capital Markets LLC in New York, which sees prices at about $47 a ton this quarter. “September was the strongest month of the year of shipments from Australia and Brazil, so these exports have likely been making their way to China this month, adding to excess supply there.”
Heading Lower
Ore with 62 percent content delivered to Qingdao fell 0.6 percent to $49.65 a dry ton on Thursday, the lowest price since July 9, according to Metal Bulletin Ltd. Prices on Wednesday tumbled 3 percent, snapping the trading range of $50 to $60 that’s held since July 10. Iron ore bottomed this year at $44.59 on July 8.
Stockpiles of iron ore at ports in China, tracked as one gauge of demand, have increased to the highest since May. The holdings rose 0.9 percent to 83.95 million tons on Oct. 23, according to weekly data from Shanghai Steelhome Information Technology Co.
Zhu Jimin, deputy head of the China Iron & Steel Association, said Wednesday that local demand for steel is contracting even faster than mills are cutting output, swelling a steel glut. Mills face rising losses and tighter credit, according to the group.
The strains on China’s steelmakers are starting to show up. Baoshan Iron & Steel Co., China’s second-largest mill by output, swung to a net loss in the third quarter and warned that full-year profit could be wiped out, according to a statement on Wednesday.
“At some point, Chinese steel mills will have to respond to lower demand, lower prices and increasing signs of protectionism in export markets and cut production, which will, of course, dent iron ore demand,” said Bain.
Prices will probably fall further from the recent range of $50 to $55 a ton, Tom Albanese, chief executive officer of Vedanta Resources Plc, told the Australian Financial Review in an interview.
