LAUNCESTON, Australia, Nov 7 (Reuters) – One of the recurring themes in iron ore’s precipitous decline this year has been the weak state of Chinese demand. The problem with this is that it simply isn’t true.
It doesn’t take much of a search to find media and analyst reports that reference softness in China’s steel market as one of the major reasons for Asian spot iron ore’s 43-percent decline this year to a five-year low of $75.60 a tonne on Thursday.
“Iron ore falls further as Chinese buying interest stalls” was a Reuters headline from Oct. 17.
Just in case anybody thinks I’m picking on my own colleagues, this one is from competitor Bloomberg on Thursday: “Iron drops to lowest since 2009 as APEC curbs dent demand” – a reference to steel mills closures ahead of the upcoming meeting of the Asia-Pacific Economic Cooperation group in Beijing as part of measures to control pollution.
It’s not just news reports, analysts have also pointed to the slowing growth of China’s economy.
“In China, slowing industrial trends and deteriorating property fundamentals are having an adverse impact on bulk commodity demand – prices of iron ore and thermal coal both hit five-year lows,” said a recent research report from a major bank.
To be fair to both the media and the analysts, many have also pointed repeatedly to the increase in supply as a factor in driving down iron ore prices.
FOCUS ON CHINA ECONOMY MISLEADING
But the fact remains that because China buys two-thirds of seaborne iron ore, the focus has been very much on the outlook for its economy, and in particular the sectors that use the most steel, such as housing construction and infrastructure.
It’s here that many analysts see weakness as the Chinese authorities try to shift the economy to a more consumer-led model and away from the fixed-asset investment and export-orientated manufacturing that have driven the past decades of rapid growth.
For the rest of this article, click here: http://www.reuters.com/article/2014/11/07/us-column-russell-iron-china-idUSKBN0IR0V820141107