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Iron Ore Prices Collapse Into Bear Market On China Credit Concerns

Tyler Durden's picture




 

Iron Ore prices have dropped 25% since the end of last year, sending the key steel-making component into a bear market after slumping by over 9% overnight - its biggest daily drop on record. We warned last week this was likely to happen on the heels of Copper prices fell on monetary financing fears as we explained here how Iron Ore replaced copper as the collateral pool for new loans (following China's clampdown on cash-for-copper deals last year) and stockpiles hit record highs. What is further hurting the Iron ore prices are concerns over China's new anti-pollution reforms which are set to close thousands of furnaces.

 

Iron Ore Stockpiles are at record highs...

 

The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy.

 

As we warned last week...

 

 

 

And what happened... Iron Ore prices are collapsing as the new monetary metal is delevered...

 

leading to lower collateral values and a rapid tightening of credit conditions which is simply a vicious circle for China's subprime borrowers (the massively over-supplied and under-demanded steel industry being front and center)

 

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Mon, 03/10/2014 - 09:38 | 4530014 Headbanger
Headbanger's picture

Deflation is a bitch!

Mon, 03/10/2014 - 09:39 | 4530018 Occident Mortal
Occident Mortal's picture

Wonder how the AUD carry trade will hold up during this unwinding?

Mon, 03/10/2014 - 09:50 | 4530058 BandGap
BandGap's picture

"Hold up" during this unwinding?

Ironic double entendre.

Mon, 03/10/2014 - 10:08 | 4530114 Z_End
Z_End's picture

How about the Australian Real Estate market?

Mon, 03/10/2014 - 10:59 | 4530337 ParkAveFlasher
ParkAveFlasher's picture

Whoopie Cushion, bitchez!

Mon, 03/10/2014 - 09:45 | 4530036 Pseudonymous
Pseudonymous's picture

And it's just masking the high monetary inflation!

Mon, 03/10/2014 - 11:11 | 4530383 Dollarmedes
Dollarmedes's picture

This event seems important because it's real, but how many times before have our rational expectations been thwarted by the banksters? So the question is: what can China do to stop the unwind? Are they going to create more credit to bail out all the failed businesses in the future, until their ledgers have $50 trillion on them?

Mon, 03/10/2014 - 09:42 | 4530024 NoDebt
NoDebt's picture

I just want to say one word to you. Just one word.  Are you listening?

Yes, I am.

Plastics.

Mon, 03/10/2014 - 10:11 | 4530120 Ban KKiller
Ban KKiller's picture

The Graduate, no?

Mon, 03/10/2014 - 10:49 | 4530292 Snoopy the Economist
Snoopy the Economist's picture

So how many battleships, bridges, planes and buildings can you make ouut of plastics? Oh, none.

Mon, 03/10/2014 - 11:47 | 4530515 mickeyman
mickeyman's picture

You can make them in China. The bridges are a little risky to cross.

Mon, 03/10/2014 - 09:43 | 4530026 pods
pods's picture

Well I think it will ber fine as we all know that China isn't leveraging this to the moon, right?

China is that proverbial sub that has lost power and is slowly drifting lower towards deflationary crush depth.

pods

Mon, 03/10/2014 - 09:47 | 4530041 NoDebt
NoDebt's picture

Yeah, judging by the (so far) light traffic through this article I think perhaps some are missing the fact that this is NOT REALLY an article about steel or the price of steel, but what it represents when you link an industrual metal directly to a rehypothecation chain.  When one side of that goes limp, so does the other.  Quickly.

Mon, 03/10/2014 - 09:49 | 4530053 fonzannoon
fonzannoon's picture

If you want to play the iron ore etc. moves here is the best way to play it.

http://finance.yahoo.com/q?s=fb&ql=1

Mon, 03/10/2014 - 09:54 | 4530074 NoDebt
NoDebt's picture

You're right, Fonz.  It's the only safe play.

Mon, 03/10/2014 - 10:01 | 4530091 DeadFred
DeadFred's picture

Thanks for the link! This is a good article but it needed a bit more chart porn.

Mon, 03/10/2014 - 09:50 | 4530060 HardlyZero
HardlyZero's picture

Steel rod to pushing string.  Australia and other ore exporters will be deep impacted.

Mon, 03/10/2014 - 09:44 | 4530028 Dr. Engali
Dr. Engali's picture

Don't worry. I have it on good authority that sub-prime is contained and there will be no contagion.

Mon, 03/10/2014 - 09:44 | 4530030 Cangaroo.TNT
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In the meantime my steel suppliers keep telling me to lock in any orders now because prices are going up.

Mon, 03/10/2014 - 09:51 | 4530064 NoDebt
NoDebt's picture

Back in 2008 my heating oil company was screaming at me to lock in my price for the year before it went any higher (home heating oil contracts typically renew in August, which happened to be EXACTLY the month that oil spiked to $147/bbl).  I said, no thanks, I'll just pay market per delivery.  You may want to consider doing something similar.

Mon, 03/10/2014 - 09:49 | 4530031 Mediocritas
Mediocritas's picture

But, but, Citi said AUD was a buy!

I beg to differ.

Mon, 03/10/2014 - 09:47 | 4530043 Josephine29
Josephine29's picture

Also the Chinese Yuan is falling again. Wasn't it supposed to be rising?

Back on the 25th of February I pointed out that the gradual appreciation of the Chinese Yuan or rennimbi -started in response to foreign claims of a deliberately low exchange rate leading to unfair price competitiveness of Chinese exports- had appeared to reverse as it fell instead. As it was just under 6.1 to the US Dollar then and is 6.14 now as I type this then this issue has not gone away. Yet another development which is not behaving in a rebalancing theme is it not?


http://www.mindfulmoney.co.uk/wp/shaun-richards/economic-problems-in-chi...


Mon, 03/10/2014 - 09:50 | 4530055 q99x2
q99x2's picture

Another bad thing about it is that all these layed off miners from Austrailia are turning to drugs and alchohol and mining crypto-currencies. They are happy with their computers bringing in enough for them to purchase more dope. Then they get on mcxnow and start bragging about it as they dump their coins and drive all the cryptos into the dirt. On the bright side of things: AA is growing and a lot of hot chicks are showing up at meetings.

Mon, 03/10/2014 - 09:55 | 4530078 Mediocritas
Mediocritas's picture

I don't know if this is seasonal but: http://content.mycareer.com.au/salary-centre.aspx

Holy shit! Is that all due to mining closing up?

Estimates of a 2% hit to Oz GDP just from capex contraction in 2014/15 seem conservative by the looks of it.

Mon, 03/10/2014 - 09:55 | 4530077 mayhem_korner
mayhem_korner's picture

 

 

How does one say "timber" in metal-ese?

Mon, 03/10/2014 - 10:00 | 4530088 Tinky
Tinky's picture

stress fracture!

Mon, 03/10/2014 - 11:18 | 4530413 General Decline
General Decline's picture

Pull it!

Mon, 03/10/2014 - 10:13 | 4530130 Ban KKiller
Ban KKiller's picture

Again, some accounting efforts will clear this up by noon EST.

Look over there, squirrel!

Mon, 03/10/2014 - 10:34 | 4530219 falak pema
falak pema's picture

Calling Mr Mittal, calling Mr Mittal...how is your business doing in China?

Mon, 03/10/2014 - 11:15 | 4530401 Carl Popper
Carl Popper's picture

All the Aussie posters acting so superior when they discuss the Aussie economy and their "enlightened" government policies are going to be in deep trouble when their sugardaddy stops sending them money

Mon, 03/10/2014 - 13:56 | 4531021 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Fuck of a lot better than the Ponzi American War Machine killing its way around the world to support the Ponzi USD. You guys have that spineless Kenyan Socialist in charge, how's that working out for ya?

Mon, 03/10/2014 - 13:56 | 4531022 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Fuck of a lot better than the Ponzi American War Machine killing its way around the world to support the Ponzi USD. You guys have that spineless Kenyan Socialist in charge, how's that working out for ya?

Mon, 03/10/2014 - 18:20 | 4532353 mobydick
mobydick's picture

But, but, but Oz real estate prices are going through the roof. Oh dear. Oh dear. Those poor Australian Banks and they're the safest in the world, you know.

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