Most of the economic data out of China hav signaled a slowdown in the world’s second largest economy.
The sceptics believe that China is well on its way to undershooting its official target for 7.5% growth.
However, iron ore prices are defying China’s slowdown, notes Morgan Stanley’s Adam Longson.
While indicators like the manufacturing PMI index have fallen about 7% since spring, the industrial metal prices have shot up about 14%.
Longson says three things are driving up prices:
- Strong auto sales
- Robust white goods sales
- Signs that the government is still going to spend on infrastructure projects like high-speed rail.
On that third point he writes: “Other market participants have maintained that the State Council has agreed to increase investment in the construction of railway and urban infrastructure to prevent GDP growth falling lower than 7.5%.”
Longson expects prices will probably drift lower, but will “remain resilient” at about US$US110-143 per ton. Prices could go higher with more federal stimulus.
“In summary, the iron ore price strength adds to other evidence of a mild growth rebound in China,” he says.