Iron ore has been riding a huge roller coaster style ride since mid-2021 as investors attempt to second guess Chinas demand as the world exits COVID just as the world’s second largest economy continues to try and live without the virus having just sent Shanghai, a city of 25 million people, into a 2 stage lockdown as they attempt to balance the economy v the virus – this is the countries largest lockdown as Omicron makes a mockery of the governments zero-COVID policy.
MM called and invested fairly well around the strong bounce from the bulk commodities panic lows in late 2021 but after taking profit on our Fortescue (FMG) position last quarter we are wondering if we pressed the exit button too soon as iron ore rallies in the face of adversity, although we shouldn’t lose sight of its significant fall through 2021 as the Chinese property market unravelled following the collapse of property developer China Evergreen. Traders are looking through the current lockdown in anticipation of mass restocking of iron ore when the country lifts the restrictions and if the West is a guide it’s going to be a case of “when not if”. Also we shouldn’t forget optimism around additional policy support as Beijing looks to shore up the world’s 2nd largest economy which is struggling to maintain strong economic growth.
Overall MM believes iron ore is probably not too far away from finding a new level of equilibrium but assuming it’s here, or higher the Australian miners should remain prolific cash cows.
