IB Net Payout Yields Model

Australia Iron Ore Exports Set to Rise Over 50% By 2017

According to this Reuters report on CNBC, iron ore demand is set to grow at 11% through 2017. Wait, didn't stocks initially plunge today due to fears of slower demand in China for iron ore?

Talk about a confusing market with conflicting currents in the news. The actual news from BHP Billiton (BHP) today was that demand from China was "flattening" or otherwise growing in the mid single digits versus the double digit growth of the past decade. Slower growth, but still growth.

How this is news was beyond me. Everybody should know by now that China wants slower growth. Stocks like Alpha Natural Resources (ANR) are down some 75% since early 2011 peaks. The market has already harshly punished this met coal producer to the extreme making the initial 6% drop further signs of a bottom. Remember that met coal is used with iron ore to produce steel.

So now basically within 24 hours the media is spinning out reports of massive growth in iron ore demand and the expectations for the very BHP to push forward with ambitious production expansion.

Honestly don't see a peak in demand until China becomes a much larger economy and India reaches a certain level to where it has slower commodity growth. For example, it wouldn't shock me to see copper reaching $6/lb at which point new production techniques might finally allow for easier mining of the commodity or alternative sources. Until then, this just appears to be a pause in the process.

Until that happens, it just doesn't add up of owners of long term valuable commodities such as copper and met coal won't eventually rally back past 2011 highs. These items aren't getting any easier to mine making companies such as Freeport McMoran (FCX), Alpha Natural, and Walter Industries (WLT) very valuable down the road.

Don't be surprised if somebody doesn't swoop in soon attempting to buy these assets on the cheap. One has to expect that the Chinese are snooping around though highly unlikely a deal for either company would past muster.

Per CNBC report:
  • Exports will rise by an annual rate of around 11 percent to reach 767 million tonnes  i n 2016/17
  • Global iron ore demand is set to double to around 3.5 billion tonnes a year by 2030, with Chinese appetite for the steel-making material continuing to drive the market

Disclosure: Long ANR and FCX. Please review the disclaimer page fore more details. 


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