Back in May 2012, we argued that Australia at some point could be facing the "Iron Ore" conundrum given its exposure to Iron Ore. Although we had it wrong in relation to our negative stance on the Australian dollar, the Australian dollar has been so far remarquably steady compared to the US dollar - source Bloomberg:
Chinese steelmakers re-stocked iron ore during the traditional “winter reserve” period and ramped up purchases as confidence in the economy improved, leading to an explosive increase in demand in the short term, the National Development and Reform Commission said in a statement on its website.
The three largest mining companies and certain traders either delayed or controlled deliveries to make up for their previous losses, creating a false impression of temporary short supply, according to the NDRC. Some mining companies also bought iron ore from the market to drive up prices, it said. - source Bloomberg
South Korea is the only one of Asia’s 10 biggest economies to report February trade data thus far. Given that China is its biggest export market, Korea’s sales drop signals that its larger neighbor is poised to report weaker-than-expected shipments, said Zhang Zhiwei, Nomura’s chief China economist. The CHART OF THE DAY tracks monthly changes in the two nations’ overseas sales since 2008. South Korea said exports in February declined 8.6 percent from a year earlier, the second drop in three months. Based on that result, Zhang predicts China will announce tomorrow a 10 percent decrease when February figures are released in Beijing. Nomura’s economist is among only six of 33 analysts surveyed by Bloomberg that predict a drop. The median estimate is for an 8.1 percent increase. “The data suggests China’s recovery is not so strong,” Hong Kong-based Zhang said. “We still call for the People’s Bank of China to tighten policies, hike interest rates and regulate shadow banking activities this year. But recent weak macro data will only make the central bank delay it.”
China this week affirmed its 2013 growth target at 7.5 percent after the economy grew 7.8 percent in 2012, the slowest pace in 13 years. China will report a February trade deficit of $28.5 billion, according to Zhang. That would be the first shortfall in a year and compares with an average monthly surplus of $16 billion in the past three years. Growth rates for exports and imports in the first two months are distorted by changes in the timing of the weeklong Chinese New Year holiday, which fell in February this year and January in 2012. Nomura’s forecasts tie in with the new export orders component of China’s official Purchasing Managers’ Index, reported on March 1, which fell to a six-month low of 47.3 in February. The broader PMI sank to a five-month low of 50.1, according to data from the National Bureau of Statistics and China Federation of Logistics and Purchasing. A reading of 50 marks the divide between expansion and contraction." - source Bloomberg.
Could the recent slowdown and price manipulations for Iron Ore spell trouble as well for neighbor Australia given its dependency to Iron Ore exports? We wonder.