NEGOTIATOR’S TAKE: China’s economic growth is once again pushing up metal prices.
If you had been asleep for the last month, woke up this morning and picked up a paper you could be forgiven for thinking you had been transported back to 2009. Chinese construction is up 20% last month year-on-year, Chinese loans were up 41% last month, the government is raising exchange-margin requirements from 5 to 8% to dampen rampant speculative behavior, should we go on?
Is it 2009 again?
Turn to commodity prices, copper is up 20% this quarter, zinc is up 22%, iron ore has nearly doubled, hitting $70 per metric ton and a 16-month high according to Bloomberg. Steel mills in China, encouraged by rising prices and strong construction demand, churned out over 70 million metric tons last month, nearly equivalent to the entire U.S. annual output. Sound like the start of the super cycle to you?
Iron ore producers are trying to take credit for cutting back on expansion of iron ore mines and are indicating they would limit production to support prices but in reality, they are tinkering at the margins.
Is stimulus investment by Beijing temporary?
Price gains, flat-footing nearly all of us, have been driven by a sugar rush of stimulus investment by Beijing, the question (the same one we faced back in 2009 it must be said): is this temporary to provide some short-term relief or is it medium- to long-term stimulus to give the steel industry time to restructure?
In 2009 it went on for more than two years, at present we have no way of knowing how long Beijing will keep this up but if you ask Goldman Sachs its analysts say the iron ore price is coming back down.
ARTICLE AUTHOR: Stuart Burns (Editor-at-large)