It’s The Other Whats Becoming Ironclad

It was said to be the absolutely perfect scenario (see: below). The vaccines put an end to the pandemic within sight, combined with intractable problems getting any iron out of the ground and then shipped somewhere useful, demand for the commodity was expected to be robust and better while at the same time supply would remain constricted.
With American consumers going bananas, and a resurgent China consuming as much of the metal as could be sourced, both supply and demand were declared to be manifest tailwinds for a long time to come.
“Everyone” said it was practically guaranteed as the iron (and steel) price reached toward the stratosphere:


What a difference in just a few months. The alleged long-run manufacturing and investment boom presumed at mid-year, some said just the beginning of a super-cycle, predicated on big time Chinese strength being further urged by US demand, pretty near all of it has instead disappeared.
When it comes to this particular industrial-sensitive metal, iron has more than a little to say about the full economics of the global economy.
Supply is being less constrained, more of the commodity coming up from the ground, yet even before the loosening constraints questions surrounding global demand had been swirling. Ever since around April, more and more the “growth scare” comes into view when it should be the scenario increasingly vanished.

It would take iron prices very little time to catch on (the first article above delightfully written right at the very top), but now there’s no denying the absolute free-fall ever since. CEO’s and experts, none of them saw it coming.

The only thing at odds today is interpretation; as usual, the blame has been cast in the direction of the pandemic (delta summer) as well as Chinese authorities’ growing priority over air quality at the expense of both electricity thus industry. That’s certainly in-line with “common prosperity” as well as everything contained originally in Xi Jinping Thought which put “quality” growth way, way ahead of any “quantity” more than four years ago.
Yet, going back to late 2017 and Xi’s more-than-ceremonial elevation, this new economic formula still derives itself from quantity; as in, if it’s there, fine. If it isn’t, then precedence is more thoroughly given to quality.
In other words, the more the Chinese play up these pollution rules or other non-economic factors, the more it tells you what they think in terms of global economic quantities available to China. This, you can bet, is what iron’s newfound brittleness is about.
Global demand.

As I’ve been writing consistently since the 19th Party Congress, you need only take the Communists’ word for it. Premier Li Keqiang, once Keynesian defiant (2016) across the economic divide from his superior, is now firmly settled into Xi’s inescapable ideological orbit. Just yesterday, China’s Number Two referred to “downward pressure” and “cross-cyclical adjustments.”
Uh oh. Neither term makes their welcome return.
The phrase “downward pressure”, in particular, had become prominent in Communist communications back in 2019; not exactly the comparison anyone would want (or was told to expect when iron was a shooting star darling) when the world expected differently out of China in what was supposed to have been its primary positive contributions to a bourgeoning worldwide recovery beyond 2020.
Who cares, right?
Sure, China today like in 2019 has its own problems. Inflationary red-hot America can’t be bothered with whatever ails the heavy smog-filled air around Beijing.
No. This is the other part of what’s got iron speculation speculating the other way since May. We’ve seen this movie before, just a few years ago. Why did iron prices peak in July 2019, for example? Back when “downward pressure” was being thrown around China, it wasn’t just China being pushed toward downturn.
The year before, 2018, globally synchronized growth had been dissolved and turned into a globally synchronized downturn before year’s end (while, stupidly, Jay Powell remained committed to rate hikes and inflation anyway). Once it became clear in 2019 the synchronized part was back on the table, only then in downturn, iron collapsed even as Powell’s Fed flipped to rate cuts.
The Chinese, notably, sat on their hands in 2019 just like they had said they were going to.
And the downturn began under China spread via Japan and Germany. These difficulties from the very beginning in 2018 were a prediction about how the world would turn out even before 2019; for America, too. If you see how the Chinese see trouble ahead, as the Germans and Japanese, it’s certainly not trouble for only China, Germany, or Japan.
All three and then everyone else.

This American consumer frenzy during 2021 coupled with the supply chain problems really has masked what’s been serious weakness already. Take a peek at US trade levels, for example, what you’ll see bears some resemblance to that red-hot economy supposedly benefiting the whole world (at least our immediate trade partners and what else might spill over from them).
On the surface, sure, quite good.
In context, not nearly as scorching when compared to the prior trends (above). Then taking account of these non-economic price increases (below), it’s instead painfully clear the volume of material – raw and manufactured – entering the country has slowed to a standstill.
The date of that standstill? April.
It is the same on America’s traded flipside, too, meaning exports haven’t rebounded nearly as much as imports, while also in real terms trade volumes are substantially declined starting with, once again, April.

Out there amidst the rest of the global economy not directly impacted by Uncle Sam’s earlier helicopters, there’s not much recovery at all and what little there may have been seems to have faded away around six months ago.
This, not air quality, supply problems, nor “inflation” is what Li Keqiang refers to. Just like it hadn’t been “trade wars” when China spoke up in 2019. The fact no one likes the message shouldn’t be a deterrent from appreciating the straightforward implications.
They aren’t inflationary in any way. Deflationary potential, on the other hand, is getting alarmingly close to being ironclad.

Disclaimer: Riki nema disclaimer.

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