Article by David Llewellyn-Smith courtesy of Macrobusiness
Gina Rinehart’s right-hand man is on the hustings with a stark warning:
- Rinehart’s subsidiary Atlas Mining’s CEO Sanjiv Manchanda said iron ore will fall as supply normalises.
- He demanded cuts to payroll tax and compliance costs.
- He wants tax concessions to allow for iron ore beneficiation plant investment.
Aside from the tax drivel, which is simple rent-seeking with iron ore prices and miner margins at the moon, this is good advice.
The iron ore price is going to fall through this year and next and probably forevermore after that to an average price $40 by 2025. Why? This:
- China has no choice but to resume its structural adjustment away from investment-led growth.
- The new Five Year Plan had lower infrastructure builds across the board.
- Earlier this year China launched the “three-red lines” with mandatory deleveraging for large developers.
- China will green its steel output via a rise in scrap output for decades to come.
- PBOC policy is tightening.
- Brazilian supply is normalising with 40mt this year and another 30mt next.
- Australian expansions are on deck for another 30mt next year.
- Idled brownfield mines are reopening worldwide.
The iron ore price is currently at levels that will incentivise Joe Bloggs to dig up his yard and ship it to China.
It is not going to last.