Chinese Iron Ore, Steel Prices Collapse Despite Government Stimulus

A funny thing happened in the last year since China gave up on its hard-line reforms and folded back to stimulate by all means necessary... the financial economy soared and the real economy sunk. Iron Ore prices are near record lows and Rebar prices are at record lows as stocks spike.. and this should be no surprise since we were told by a rural Chinese chap recently that "making money in stocks is a lot easier than farmwork" or construction or real world activity.

 

 

As Reuters reports,

"Steel prices in China have continued to fall despite the rally in iron ore prices in the last month, limiting the ability for steel mills to pay increasingly higher prices for ore," Australia and New Zealand Banking Group analysts said in a note.

 

With Chinese steel demand expected to wane as hotter temperatures over June and July slow construction activity, the ANZ analysts said they expect iron ore to fall back below $60 per tonne over the coming month.

 

A sustained decline in stockpiles of iron ore across China's ports has helped fuel a 40 percent rally in the steelmaking commodity from a decade-low of $46.70 in April.

 

Shanghai rebar prices in contrast rose only around 4 percent from April lows before pulling back again this week.

 

Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI dropped 0.8 percent to $64.50 a tonne on Monday, according to The Steel Index (TSI), retreating from a near five-month high of $65.40 reached last week.

 

"The continuing fall in steel prices in China is beginning to weigh on sentiment, with mills looking increasingly squeezed," TSI said, citing a further decline in prices of spot steel products in China, including billet and rebar.

 

A slowing Chinese economy has hit industrial demand with steel consumption continuing to shrink in the first quarter of this year after contracting in 2014 for the first time in more than three decades.

And for an even clearer example of reality - Rebar prices are hitting record lows...

 

Not a sign of turning demand in the economy... not the lagged pickup in construction actvity that so many believe the stock market surge will bring... instead just more of the same as monetary policy transmission mechanisms are all glued up and fundsa flow directly to financial asset inflation.