In case you missed it, Brazilian iron ore exports fell in November, down 15% from the average monthly rate for the preceding three months, according to Goldman Sachs. Yet the commodities markets seem to have shrugged it off… or haven’t yet digested its potential implications.
Goldman Sachs: Taken in conjunction with the recent slowdown in vessel bookings from Australia, this could indicate a slow start to 2010 for Chinese imports of iron ore. However, the market is clearly not pricing in a slowdown.
As the table below shows, the current [ore] spot price of $102.50/t CFR implies a 40% rise in Australian contract prices for JFY 2010/11 on a FOB netback basis while the forward price for 2Q10 implies a 34% rise – both well above our base case assumption of +20% for Australian fines.
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Thing is, a 2010 Chinese iron ore slow-down would have negative implications for more than just steel prices. It would probably be indicative of a greater slow-down of commodity-consuming Chinese economic activity, such as construction. Thus a slow-down in Brazilian iron ore imports reflects a slow-down in Chinese demand. Given that China is such a massive proportion of commodities demand these days, thus could also be a red flag for generalized commodity-price weakness ahead. One month’s data doesn’t make a trend, but this Brazilian blip is surely something to stay aware of.
Goldman shows how iron ore prices haven’t weakened at all lately:
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(Via Goldman Sachs, Iron Ore Price Snapshot, Malcolm Southwood, 7 December 2009)
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