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 [8] as we explained here how Iron Ore replaced copper as the collateral pool for new loans [9] (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 [10].
Iron Ore Stockpiles are at record highs...
[11]
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...
If copper is plunging on monetary financing fears out of China, iron ore will be next http://t.co/D4JXQDM0fz [12]
— zerohedge (@zerohedge) March 7, 2014 [13]
And what happened... Iron Ore prices are collapsing as the new monetary metal is delevered...
[14]
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)