Thursday, September 11, 2014

"Goldman Proclaims the End of the Iron Age"


"The iron ore price has just hit a new 5-year low and Goldman is out with a piece in which they conclude that the 'end of the iron age' is near. Goldman basically states that we are shifting from an under supply phase in iron ore (2004-2014) to an oversupply phase which can be expected to last at least a decade. This comes as a result of the huge lags between investment and production – classic 'Schweinezyklus.'"
Quoting the GS piece, this amazing tidbit:
"On a per capita basis, the average household in China is accumulating steel at a rate equivalent to the purchase of a new car every 8 months (without disposing of its older cars)."
The Vienna Capitalist has an interesting theory about the damage that the Chinese "stimulus" did in terms of malinvestment.
"iron ore mining investment has really taken-off after the financial crisis, i.e. after we have already had books touting the commodity (around August 2008 oil hit USD 150/barrel) supercycle for half a decade. I can only speculate about why this is the case – long lead time for mine investments play a role for sure – but I think it also has to do with the fact that China’s investment binge really got out of control as a result of their huge stimulus program during the financial crisis."
Everyone thinks that we're at a "permanently high plateau" but the next crash is going to be big.

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