China
China house price data continues to decline. No surprise given Evergrande, Fantasia spill-overs.
The competing narratives of China-property-crunch vs commodity-price-bullwhip-effect continues. The bullwhip effect is the longer form story of resurgent demand (from reopening, from fiscal stimulus, from households presently spending more on goods relative to services) meeting COVID impacted supply side constraints (worker restrictions, cargo freight/shipping constraints), with the added sauce of energy price crunches curtailing supply in certain energy intensive commodities (like Aluminium).
The ESG emissions impact should be unambiguously bad for iron ore, as it requires less steel (latest NBS data below)…
…and the property demand fallout similarly bad for iron ore. Graph below uses the IISI steel production data (which misses the monthly cut-off by a fraction, but is more readily formatted, and hence fits better with our models).
Less clear is aluminium and copper, which also have the renewables thematic behind them.
We’ve mainly played reopening meets COVID impacted supply side issues through our long energy bet, and to a lesser extent alumina, via AWC (which we bought mainly because it was cheap on bottom of the cycle returns, compared to iron ore companies that we thought were overearning).
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