Phat Dragon is Westpac’s excellent weekly chronicle on everything Chinese so this week a discussion of the acceleration in the fall of the iron ore price couldn’t be avoided.
Phat Dragon notes that the moves in iron ore are “admittedly a surprise development in terms of speed and scale, if not direction” and there are a number of factors at play.
These factors include inventory overhang, the inability of smaller firms to access finance for working capital, and the third is that “heavy industry and infrastructure capex were losing momentum in late 2013, and that trend has no doubt extended into early 2014, with weaker average Jan-Feb PMIs one piece of evidence on that front.”
So it’s not the fall that is the surprise – just the speed.
But Phat Dragon reckons the recent commentary has it all backwards when it comes to the relationship between China and Iron ore prices. Phat Dragon says that headlines such as “Iron ore price falls on China concerns” is actually the wrong way round and that “what has actually happened of course is that China concerns have increased on the iron ore price fall.”
As he says, the ordering of the words does matter and has a pop at journalists and Tweeters saying the choice of “words actually matters … apparently they stopped teaching that in journalism school right around the time Gen Y decided that re-tweets constituted original research.”
Yowsa. That is some hot dragon breath.
But what is clear is recent efforts to attack speculators throughout the Chinese economy seems to be working and it is the belt-tightening in China that has caused the iron ore price to fall naturally as demand dries up. This week’s news only served to highlight that fact according to Phat Dragon.