‘Whole industry reaches its Waterloo’

iron ore sept 3

Another unpleasant session in China for metals- and it got much worse after that piece went up, Dalian iron ore futures closed down 3.1%, second day of >3% decline. Note that the fellow calling this ‘Waterloo’ for the iron ore and steel industries is also eyeing a bounce back above $90. And why would that be? Stimulus! This is indeed what the steel and iron ore sectors need if we’re to see a meaningful and sustained recovery in prices in the near-term. Otherwise the structural oversupply in both sectors, increasingly exacerbated by the property slowdown in China, will continue to pressure producers until the deadweight is trimmed.

It is possible that the credit spigots are opened once more and the government falls back on fixed asset investment spending to stimulate the economy, but as I’ve discussed, signs overwhelmingly point towards this not happening. It’s likely we’ll see more targeted measures to prop up growth, especially if things turn nasty for property. But take a look at that most recent bounce in spot before the current rout; that was this year’s ‘mini-stimulus’ in action, and that’s about the extent of the support we’re likely to see for iron ore from the Chinese government.

Going to be interesting to see how spot holds up tonight; it’s quite likely this move takes it all the way to a 70-handle.

It’s safe to say the end is nigh for the iron ore minnows.


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