China steel

New data, same note.

The steel output data (2nd row, 3rd column) looks so grim, and when combined with knowledge of China’s demographic destiny (much smaller population in time) and debt levels (they are simply too high, and growing given more and more debt is required to get less and less GDP growth)…

…one finds it very difficult to understand how iron ore remains at such lofty levels.

I guess, using these sorts of inferences (big and general, not production specific for the commodity) one searches for “the canary”. And you would assume steel exports surging higher again is a good canary, for forecasting falls in demand that lead to lower iron ore declining.

But you don’t even have to do that. You’ve got the steel production data right there! No need for second order reasoning. Baffling.

Perhaps a last thought. Many have said “iron ore is rallying because of potential China stimulus”. That’s why even though steel production is weak, iron ore remains bid. Indeed, the worse the fundamentals, the better or stronger the prospect for policy action, hence traders continue to position for further price increases.

But as Michael Pettis (China blogger) noted, “with debt/GDP expanding materially over the past year, perhaps we’ve already seen the stimulus”. Maybe that was it. Nothing left to position pre-emptively for, and hence the fundamentals reassert forthwith.

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