Iron ore

The iron ore run looks a lot like Mr Coyote.

That’s inventory at port building up in a way that is highly unseasonal. I struggle with the idea that commodities trade “in the here and now” (as in driven by the needs of customers today) vs “speculators bidding it up ahead of China Third Plenum”.

We’ve had a few of these moments before when “some big event comes along and markets expect China to pull out a bazooka to lift property and infrastructure” which would give support to China’s domestic steel producers (and thus to the price of iron ore), and then it comes and goes with a bit of a whimper.

We all know the stats. Property prices are disconnected from incomes/rents. Households no longer believe they “only go up”. There’s lots of vacancies across apartments/ office towers. Demographics aren’t supportive. Debt levels are high, in general.

We shall see. Maybe they really will unveil something material. BHP and RIO are great companies, we own them in our various funds, and they are, we think, just about the best and only worthwhile exposures in the materials space (for tier 1, long life, low cost mines across a range of important commodities).

But it is hard to ignore all of the above…

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