The next China shock is Scraptastrophe!
3 min read
The next China shock is Scraptastrophe!  MacroBusiness
Australia could literally bomb Beijing right now and it would happily keep taking our iron ore. The reason is simple. Iron ore is the key commodity input into CCP power. Only by sucking in a billion tonnes of the stuff can it sustain the useless building of empty stuff that keeps folks employed and not thinking about such niceties as freedom.

That is the reason that Australia has been singled out over the years for great largesses and great influence-peddling plus, more recently, great abuse. The CCP loves and hates this dependence like no other.

This trade was always going to end sooner or later. Urbanisation is vast in China but it is finite and already past the peak in terms of numbers per year:

Plus, given the build-out happens largely in advance, the need for more empty apartments and infrastructure is already rapidly declining.

So, the demand for steel and iron ore is going to fall naturally before long and prices slump historically.

But the CCP need not wait. It can still pull a few levers to make this hurt all the more. One is to invest in Simandou for greater seaborne iron ore volumes. The other, much larger, lever to pull is to transition Chinese steel production from blast furnaces (BOF) requiring raw materials to Electric Arc Furnaces (EAF) using scrap steel.

I have noted that China has so far tried to accomplish this transition with limited success:

Scrap production was tracking nicely through 2017 but has since stalled owing to bans on imported steel. No longer! Via Argus:

China's next five-year plan is expected…
David Llewellyn-Smith
Read full article