RBA and iron ore

The AFR had a good piece referencing the RBA’s work on iron ore and trade.

It’s all stuff that’s very familiar to regular readers of our research notes; namely that China is a big source of Australian iron ore demand, essentially our only customer (I exaggerate, but 85% is a lot)…

…and that property demand fell in a hole, as the property bubble burst, and, for the moment, seems to have been replaced by manufacturing demand domestically, or, simply exported abroad where it is someone else’s problem.

That “someone else’s problem” seems to have been, in part, the US, who overnight tripled the tariffs on China steel imports.

Trade retaliation, we think, will only grow in importance over time.

The rest of the article goes into China’s demographic story, which, whilst a slow burn, is one we agree with. The whole piece winds up suggesting steel demand will plummet, and hence so too will iron ore.

That might feel very extreme, given how strongly the commodity is performing, and how strongly BHP, RIO and friends are performing, but it is nonetheless accurate, we think.

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