Saturday, November 22, 2014

Answer To Yujiapu Financial District - Estimation Question

OK, OK, nobody felt like Googling what the price of steel was in 2011. Here are my rough estimates, which are back of the envelope, so shame on everyone for not making their own guesses.

  • The 50 buildings with 150,000 square meters per building is 7.5 million square meters 
  • A good order of magnitude guess is 100kg of steel per square meter (of space, not footprint)
  • That's 750,000 metric tons of steel. Steel would've cost about $1,000 per metric ton, for a total of $750 million just in steel.
  • Making 750k metric tons of steel would require something like 1.125 million metric tons of iron ore.
  • A capesize dry bulk carrier can maybe hold 100,000 metric tons of iron ore, so that would be about 11 cargoes. 
  • The Rio Tinto Brockman 4 mine produces about 20 million tons of iron ore per year. This mini-Manhattan took only 6 percent of a year's production.
  • As best I can tell, the steel production would've used about 250,000 metric tons of met coal. Reality check, steel making is reduction of iron oxide ore by heating with carbon. Iron has an atomic mass of 56 versus 12 for carbon, the ratio seems to make sense.
  • Met coal in 2011 was $300 per ton, so the met coal would've cost almost $70 million dollars
  • The Walter Energy Wolverine min capacity is something like 1.6 million tons per year, so it would be 14% of a year's production.
I am surprised by how small the quantities of iron ore and met coal are relative to what a modestly sized mine can produce. The RT Brockman 4 produces enough iron ore every year to produce 17 of these. Either one of my estimates is wrong, or Yujiapu jas just been a drop in the bucket.


Anonymous said...

One thing your point out about your 2011 met coal price is that china was max importing for this boom at peak prices, representing a massive long term wealth transfer out of china.

Effectively they were bidding against themselves. Incredibly stupid rather than a slower build out.

CP said...

That's a great point. They were paying about triple what they should have for coal and iron ore, and they were the biggest consumers.

If you look at the Aus mining boom - that was entirely a wealth transfer from the crazy Chinese!

When the China bulls claim that they are just building all these buildings "in advance" of when they are needed, does that seem incredibly clever when you realize that they bid against themselves for some very inelastic commodities??

Mr. Gotham said...

You assume they are optimizing for wealth. They are optimizing for political control, hence the need to keep people employed at all costs so as to avoid protests. The guys in the politburo can steal all the money they need, so if they waste a bunch on over priced met coal to keep the building boom going, it doesn't bother them. It's all OPM after all.