November 18, 2008
China Steel Crisis Opportunity
As the Chinese are fond of saying, a crisis presents an opportunity. World steel is in a meltdown and Chinese steel production fell over 9% in September. Anecdotal reports say October figures will be much worse with entire steel towns shut down in parts of old industrial China. The steel sector in China is overcapacity and one fifth of Chinese steel output is not profitable.
Talks for 2009 iron ore contracts are now getting underway between Chinese importers and the iron ore majors Vale, BHP, and Rio Tinto. The six year iron ore boom is over (at least for the global cycle now unwinding) and this will impact businesses and lives in Australia and Brazil in particular.
Chinese steelmakers however may use this period to change the iron ore pricing mechanism and end benchmark contract agreements in favor of iron ore indexes. This could present new investment opportunities for the next cycle.
(chart: Economist.com)
# posted by Sinomania! : 11/18/2008 02:20:00 PM
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