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Iron ore bulls steel for China’s shake-up
ROBERT GUY FEBRUARY 08, 2021
Baowu’s appetite for acquisitions has shown no signs of slowing. It picked up Kunming Steel and its 100 million tonnes of capacity last week, and is mooted to be eyeing Shandong Steel and its 30 million tonnes of capacity.
While much is written about China’s demand for Australian iron ore, there’s been less attention paid to the composition of that demand.
For Australia’s iron ore oligopoly, the transformation of China’s steel industry from a large number of smaller players in a fragmented industry to a core of more muscular producers offers both opportunity and risk.
Bigger – and hopefully stronger – Chinese steel producers make them more appealing counter-parties, especially during times when steel prices are under pressure.
Keen to diversify
However, it also presents the challenge of having their production – and investment in future capacity – dependent on the whims of a smaller number of Chinese mills.
Those would be the same Chinese steel makers that are very
supplies beyond Australia.
The timing of Baowu’s Kunming deal comes less than a month before China’s National People’s Congress meets to rubber stamp the 14th Five-Year Plan.
One of the key points of the plan is addressing China’s environmental issues.
Clearly, the steel industry is at the heart of the complex calculus of moving towards Beijing’s aim of being carbon neutral by 2060.
It’s why iron ore bulls need to pay close attention to demands by China's Ministry of Industry and Information Technology to ensure steel production doesn’t grow in 2021.
While China’s climate targets get dismissed in some quarters, environmental regulation has been given more teeth under President Xi Jinping.
China’s national carbon emissions trading scheme started this month, while the Ministry of Ecology and Environment has called out big metal producers such as Chinalco for lax environmental regulation.
So what would zero growth – or possibly a decline – in steel production mean for iron ore prices?
Macquarie has modelled a scenario where China’s 7.7 per cent year-on-year production growth in December is sustained in the first quarter of 2021, then a trend slowdown of 1.5 per cent month on month takes hold through to the end of the year.
This would deliver positive year-on-year growth until July but then fall “precipitously”, ending with a year-on-year decline of 14 per cent in December for flat growth across the year.
While Macquarie labels this an “extreme, low-probability” scenario – given it would cause a spike in China’s domestic steel prices – it does ram home the risks to iron ore should Beijing be serious about a leaner and greener Chinese steel sector.
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The problem is that after Kevin Rudd was deposed, the message was sent out by the Americans to Australia that they would not brook any independence thinking or straying from the message of the White House. Henceforth, all Australian leaders must now obey all policy commands by the US. It's the reason why the US Ambassador to Australia is a 'retired; US General; Australia functions as a white anglo outpost of the CIA.
Getting Australia to become a proper nation would involve destroying it, since the CIA is so deeply entrenched within the Australian Government; you would have to overthrow the government, destroy the current anglo supremacist nation of Australia and create a new nation from the ground up akin to what happened after the fall of Nazi Germany and the creation of a new denazified German Federal Republic.
@topic, in other news
Elon Musk is now being made to choose between China or the US; i take it from this action that Biden admin. is committed to the new Cold War against China, simply with a renewed focus on Russia first, since Trump and his people were too enamoured with a Grand White Alliance against China to bother with Russia.
Disclaimer: ZeroHedge is run by a bulgarian who wishes for such a grand white alliance against China, and is favourable towards Russia and extremely anti China.
