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Daily Iron Ore Price, Commodities and Precious Metals Update - September 2014
Topic Started: 2 Sep 2014, 05:16 PM (12,920 Views)
peter fraser
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newjez
5 Sep 2014, 05:54 AM
Umm, the mining companies planned this expansion well before the GFC. As far as they were concerned, the west was going to boom and China was going to feed that boom. I imagine they imagined consumption would be much higher than it is. I think they got lucky because China consumed more than they expected. But they still over estimated. Hell, they must have been planning this capex in 2000? GFC, who would have thought. Now they are just trying to make the best of a badish situation. It could have been much worse for them.

But what I was demonstrating was that there is a relationship between ore and property prices, but it is not a simple one.
In my view the relationship between iron ore and house prices is that prices in WA and mining areas increase during an iron ore boom because of the higher wages, but the eastern states which at first experience upward pressure as our dollar rises increasing household spending power, then experience downward pressure as jobs are lost to the higher dollar.

I don't see how that would be called cyclical though unless you are talking about the investment cycle.

The miners like most large companies are opportunists. They may not have planned the position they now find themselves in, but I'll wager that BHP, Rio, and Vale will make the most of their opportunities and they will pick up assets at cheap prices during this downturn.

Any expressed market opinion is my own and is not to be taken as financial advice
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Shadow
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Evil Mouzealot Specufestor

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5 Sep 2014, 01:01 AM
Why did you change your mind in 2008, after claiming in 2007 median house price in Sydney would be $1,250,000 by 2014
That was just the preliminary prediction - there wasn't much analysis behind it. I refined it shortly afterwards to approaching $1 million by 2015 which looks to be spot on. Not bad for a prediction made eight years in advance I reckon. Especially considering how all the bears were predicting 40% crashes at the time.

I only have an 80-90% success rate with my predictions, I don't get them all right. But I have found that an 80-90% success rate is still sufficient to profit from them.


John Frum
5 Sep 2014, 07:27 AM
In the long run I expect he will be right and you will be wrong.
How can he be right when he has already been wrong? House prices are booming, whereas he predicted a decade of nominal declines from 2010. He already got it wrong.

Even if house prices keep booming and subsequently fall for a decade from a higher peak, then he still won't have been right.

He has been predicting imminent doom and gloom for houses, and for the economy in general, for many years. It just hasn't happened. Timing is important. Anyone can predict there will be downturn 'sometime in the future'. It's like predicting there will be rain in the future. Eventually there will be a downturn and a property crash and people like Llewellyn-Smith and Steve Keen will claim they were 'right' even though they missed maybe a decade of growth before the downturn, and even though the downturn still leaves house prices at a higher level than when they first started calling 'bubble'.

Quote:
 
Wow, $84.30 a tonne. Almost a 2% drop overnight. The arse has well and truly fallen out of the market.

That, combined with an AUD preparing for liftoff can only mean one thing.

Housing BOOM!
Yes - it means interest rates stay low for longer and house prices keep rising.
Edited by Shadow, 5 Sep 2014, 09:46 AM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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newjez
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peter fraser
5 Sep 2014, 08:42 AM
In my view the relationship between iron ore and house prices is that prices in WA and mining areas increase during an iron ore boom because of the higher wages, but the eastern states which at first experience upward pressure as our dollar rises increasing household spending power, then experience downward pressure as jobs are lost to the higher dollar.

I don't see how that would be called cyclical though unless you are talking about the investment cycle.

The miners like most large companies are opportunists. They may not have planned the position they now find themselves in, but I'll wager that BHP, Rio, and Vale will make the most of their opportunities and they will pick up assets at cheap prices during this downturn.
Those who still have margins and excess capacity would be silly if they didn't use it, having spent all that money getting that extra capacity. Those without margins just look silly.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Jimbo
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peter fraser
5 Sep 2014, 08:42 AM
In my view the relationship between iron ore and house prices is that prices in WA and mining areas increase during an iron ore boom because of the higher wages, but the eastern states which at first experience upward pressure as our dollar rises increasing household spending power, then experience downward pressure as jobs are lost to the higher dollar.

The miners like most large companies are opportunists. They may not have planned the position they now find themselves in...

I attended an in house seminar in 2010 with one of the big miners where we were given a powerpoint presentation showing China's expected GDP growth rates for the next ten years and how that would translate to ore demand. All the projections were for double digit growth. The air of exuberance was something you would expect at a Billy Graham rally.

Basically we were being given a pep talk to prepare us for at least ten years of rapid growth in mining infrastructure to feed the seemingly never ending Chinese demand for ore.

I don't know whether any of the big miners even considered the possibility of a fall off in demand or a drop in ore prices.

If you look at BHP for example, they built Ravensthorpe for 2.2 billion on the back of decent Nickel prices and shut it down a year later when the price dropped.

Bull in a China shop comes to mind.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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peter fraser
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newjez
5 Sep 2014, 09:58 AM
Those who still have margins and excess capacity would be silly if they didn't use it, having spent all that money getting that extra capacity. Those without margins just look silly.
+1 - that is always the case. I would add that those who have the balance sheet strength can murder the opposition even if it costs them dearly in the process. A fight to the death - winner take all - mergers and aquisitions.
Jimbo
5 Sep 2014, 10:52 AM
I attended an in house seminar in 2010 with one of the big miners where we were given a powerpoint presentation showing China's expected GDP growth rates for the next ten years and how that would translate to ore demand. All the projections were for double digit growth. The air of exuberance was something you would expect at a Billy Graham rally.

Basically we were being given a pep talk to prepare us for at least ten years of rapid growth in mining infrastructure to feed the seemingly never ending Chinese demand for ore.

I don't know whether any of the big miners even considered the possibility of a fall off in demand or a drop in ore prices.

If you look at BHP for example, they built Ravensthorpe for 2.2 billion on the back of decent Nickel prices and shut it down a year later when the price dropped.

Bull in a China shop comes to mind.
I believe you, but what were the board members saying privately?
Edited by peter fraser, 5 Sep 2014, 06:11 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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Not looking good for iron ore prices.

Doesn't look like it will hold above $80 for much longer now.

Will be interesting to see where it goes.

Anything to say now Timmy ?
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skamy
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5 Sep 2014, 01:01 AM
Only twelve hours to respond. Like you had any thing better to do on a baked bean budget.

Why not post the whole sentence, where is says you claimed the Sydney median would be $1,250,000 by 2014. Anything to hide, you claim you don't lie but have lied about that by claiming otherwise over the years.

Are you saying that becuase a crash has not happened, that it will not happen or cannot happen.

Why did you change your mind in 2008, after claiming in 2007 median house price in Sydney would be $1,250,000 by 2014 ?
The crash happened, it was just a lot smaller than some doomsters wished for. The bears got greedy waiting and missed out altogether. The property market is now reverting to mean, which is to provide good returns and good yields. House price falls are a very rare event the bears are now betting the long long odds.

Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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skamy
5 Sep 2014, 06:42 PM
The crash happened, it was just a lot smaller than some doomsters wished for. The bears got greedy waiting and missed out altogether. The property market is now reverting to mean, which is to provide good returns and good yields. House price falls are a very rare event the bears are now betting the long long odds.
I would be inclined to think the crash is only just beginning, merely delayed by the mining boom propping our economy .

Iron ore prices are crashing, won't be long before they are $70.

I would be selling up in WA before its too late. I've noticed vacancy rates surging and rental asking prices declining on a level not seen beforem With the jobs and money dissapearing now, this is bound to become worse. Investors must be starting to flee the market if they are seeing the obviuos.

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miw
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Lef-tee
5 Sep 2014, 07:14 AM


That's something that has always interested me because China was already the world's biggest producer of iron when the price was far below that. If it managed to keep churning out more red dirt than anyone else when $90 a tonne was still just a dream, why would they collapse now and put millions of Chinese workers out of work?

I guess the question is - how did they do it? Miw might have some answers but I suspect there was much greater - perhaps total - state ownership of Chinese mines back then and they may have been privatised since. But would the government of a quasi-communist, fairly militarized state that doesn't fully trust a great superpower like the US really let it's own capacity to produce it's own steel from it's own iron ore - one of the most basic building blocks for pretty much everything - simply collapse?

I would tend to think that China has a rather stronger sense of the term "strategic capacity" than stupid-is-as-stupid-does Australia. Happy to be corrected though.
I haven't read up on the full story, but I guess it goes something like this:

Up until about 2000, China could produce enough ore from its mines to feed its mills, so it did. Somewhere between then and 2004, it ran out of local production and its growth came out of the world market, which had been pretty dead, since steel use had been in decline in the west for a long time. All the miners were caught with their pants down and couldn't meet the demand. The price of steel absolutely soared through the stratosphere here. If you wanted some steel from Baosteel, the terms were "you pay us now, we'll deliver when we deliver." I kid you not. I had people chasing me to see if I could find scrap in Australia to export to China.

Now I would say China is not far from peak steel production if it has not reached it. It is exporting steel now.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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Jimbo
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peter fraser
5 Sep 2014, 06:10 PM
I believe you, but what were the board members saying privately?
TBH, probably spruiking like mad. The environment was such that positive mental attitude was the order of the day. Say something realistic and you would join the queue at centrelink.

It is the same with my current employer. They have a mantra "20*20 till 2020"

We are supposed to grow business by 20% PA until 2020 and anyone who stands up and says "hang on a minute" gets shown the door.

It is so extreme that my boss ordered me to air freight an item from the USA so we could deliver and invoice before year end. The difference between air freight and sea freight was the profit on the job but it would have meant us meeting out turnover target so it was done. I was not a happy bunny because one of my jobs showed a zero profit.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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