Tag: Iron Ore

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The China-driven commodities super-cycle debate: Nomura edition

Nomura: We have performed a detailed analysis of metal intensity of GDP for steel, copper and aluminium in the following pages, which we believe clearly outlines our view that China’s economy is not large enough (in GDP terms) to support a continuation of the rapid growth in metal consumption seen in 2000-11.

Our conclusions are based on an analysis of China’s metal intensity of GDP rather than metal consumption per capita, and reflect a simple premise that while a country’s population size may be an important indicator of a country’s potential demand for industrial metals (per capita), the ability to meet potential demand is determined by the quantity of metal consumed in relation to the size of economic output (ie, GDP, not GDP per capita). Hence, in our view, metal intensity of GDP is a more important variable to monitor than per capita metal consumption.

Zarathustra: The reason is that, according to Nomura, the per-capita analysis ignores the composition of China’s GDP growth. China’s investment driven growth is very metal intensive.

via The China-driven commodities super-cycle debate: Nomura edition.

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Chinese economics: Is iron ore demand real?

Reuters video: Nicholas Zhu, ANZ Bank head of macro-economic data Asia, examines iron ore stockpiles at Qingdao port.

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Hat tip to Houses and Holes

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Why the RBA should cut rates – macrobusiness.com.au

Nominal house prices are falling. Not collapsing, certainly. But falling very consistently, roughly 6% peak to trough. 8.5% in real terms. This has had a number of well documented effects including high savings rates, historically conservative levels of retail sales and stalled services sector investment.

…..Now, in August, the latest month for which we have data, coal and iron ore earned Australia $12 billion in export income. Assuming the price falls we have seen get no worse (or better), by the time new prices filter through the various contract systems, those same commodities will earn us roughly $9 billion in January next year (all things being equal with the currency).

via Why the RBA should cut rates – macrobusiness.com.au | macrobusiness.com.au.

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China spoils the party – macrobusiness.com.au

From the FT:

Chinese metals companies, lynchpins in the global economy, are warning that Beijing’s monetary tightening has gone too far, causing domestic customers to delay orders and raising the risk of payment default.

In one of the clearest signs yet of deteriorating sentiment, Baosteel, China’s second-largest steel producer, has told the Financial Times that its customers were pushing back scheduled deliveries “due to declining economic growth and tightening credit”.

via China spoils the party – macrobusiness.com.au | macrobusiness.com.au.

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Here’s What Will Happen When China’s Bubble Bursts

What would a China slowdown mean for the rest of us? In the main, three things will become evident.

  • First, China will remain committed to letting its currency, the yuan, rise in international foreign-exchange markets. A stronger currency will encourage companies to rely less on exports and more on goods and services consumed domestically.
  • Second, Chinese products will no longer be the cheapest on the shelves in years to come because China’s inflation rate will rise along with its wages. This is natural when any nation climbs a rung on the development ladder, which is what China is now doing.
  • Third, the Chinese market for raw materials and heavy equipment—cranes, bulldozers, factory machinery—will slow….

via Here’s What Will Happen When China’s Bubble Bursts.

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Iron ore crash – macrobusiness.com.au

Spot iron ore prices have shed 19 percent so far this month in a sell-off largely fueled by slower construction steel demand in China, the world’s biggest buyer of imported iron ore at around 400 million tonnes a year.

In Europe, a more important market for Vale than Rio, steel markets have taken a knock given uncertainty surrounding the region’s debt crisis.

Growth of Europe’s steel production will slow in 2012 along with activity in the steel-using sectors, Eurofer, the European steel producers association, has forecast.

via Iron ore crash – macrobusiness.com.au | macrobusiness.com.au.

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Terms of trade shock brewing? – macrobusiness.com.au

As a simple exercise to give you some idea of where we’re headed, let’s refer to Rumplestatskin this morning, who shows that iron ore alone represents almost 30% of the export basket that makes up the terms of trade. Coal makes up another large component above 20%:

……So, if we use the conservative Westpac projection of a 16% fall in the value of iron ore and a 5% fall in value of total coal exports (which is obviously a very conservative guess because we don’t know the coking coal weighting), that would translate to a terms of trade fall around 12% in January next year.

via Terms of trade shock brewing? – macrobusiness.com.au | macrobusiness.com.au.

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Iron forward market softens – Phat Dragon | Westpac

The iron ore market is beginning to exhibit some signs of modest
unease, with 3mth forwards giving up significant ground while spot
has moved about 5% lower. From an export profitability perspective,
falls in the Australian dollar and Brazilian real have more than
covered the US dollar spot decline. Even so, to Phat Dragon’s eye
a cyclical correction in the ferrous metals sphere appears to be
underway and price expectations should be ratcheting downwards.

Excerpt from Westpac’s Phat Dragon weekly chronicle of the Chinese economy

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