The shared doom of iron ore and gas

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The hyper-taut ferrous complex should not be confused with equilibrium.

The market is indeed stable, but this is not owing to calm price pressures. Steel demand is stable due to exports.

Steel production is far too high on anti-innovation stupidity.

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This is a market with Godzilla pulling at one end and King Kong at the other.

It may appear balanced, but the price pressures are much larger than usual, and something is going to snap sooner rather than later.

There is still too much steel, and prices are falling. Yet iron ore won’t budge. This is bearish.

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In the blue corner is the behemoth of the iron ore oligopoly. In the red corner is the Chinese buying oligopoly. The stability of prices that this tension has brought to the market since 2022 is about to breed instability as high prices deliver massive new supply.

It has always been thus with miners. They are greedy speculators and never manage prices to suppress future supply. Stupid, really. But that’s the Ivan Grasberg doctrine.

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Look to gas to see the future for iron ore. Goldman.

  1. Lastly, while there is consensus around our bearish TTF and JKM view for later this decade, there’s still uncertainty about when upcoming LNG export projectswill come online. In particular, we expect the Qatari capacity expansion, composed of eight trains of 8 mtpa (1.1 Bcf/d or 11 Bcm/y) each, to start coming online in 4Q26, in line with market consensus. If that first train is delayed, the whole sequence of eight trains will likely be delayed.

While there are details that are different in terms of delivery risks, these principles hold just as well for iron ore. The iron ore market is also refusing to price back-end price falls.

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The notion that full production from Simandou and a bulging pipeline from Gara Djebilet will deliver $91 iron ore is about as likely as my butt turning to gold.

And while these market frailties play out, they keep incentivising more supply, which will eventually break the whole market.

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I will finish by noting that this setup is gratuitously bad for Australia’s iron ore boganaires.

Many have waded into eastern gas markets as a hedge against iron ore weakness, but the looming cycle sees both falling simultaneously.

A deeply corrupt Albo can expect his boganaire bailout phone to be running hot.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.