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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Headbanger's picture

Deflation is a bitch!

Occident Mortal's picture

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

BandGap's picture

"Hold up" during this unwinding?

Ironic double entendre.

Z_End's picture

How about the Australian Real Estate market?

ParkAveFlasher's picture

Whoopie Cushion, bitchez!

Pseudonymous's picture

And it's just masking the high monetary inflation!

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?

NoDebt's picture

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

Yes, I am.


Snoopy the Economist's picture

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

mickeyman's picture

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

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.


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.

fonzannoon's picture

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

NoDebt's picture

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

DeadFred's picture

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

HardlyZero's picture

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

Dr. Engali's picture

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

Cangaroo.TNT's picture

In the meantime my steel suppliers keep telling me to lock in any orders now because prices are going up.

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.

Mediocritas's picture

But, but, Citi said AUD was a buy!

I beg to differ.

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?

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.

Mediocritas's picture

I don't know if this is seasonal but:

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.

mayhem_korner's picture



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

Ban KKiller's picture

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

Look over there, squirrel!

falak pema's picture

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

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

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?

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?

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.