back of the envelope musings, page-7

So the wild card is definitely China. I saw some charts that suggests after the global financial crisis iron ore orders from every country went down, but in China they went up. Some iron ore producers now send 50% to 70% of their iron ore to China. So if China's demand wanes, the iron ore market will collapse.

What is strange about this Chinese demand for iron ore is that the global economy collapsed, and Chinese exports also collapsed, but China just kept spending on iron ore. You read stories of entire Chinese cities being built that have no one occupying them. Essentially China is running a centrally planned capital expenditure budget without any reference to real economic activities. Some people feel that is "faked" growth; others think it is just a Keynesian economic exercise in priming the pump to keep economic activity stimulated. China says it is buying iron ore to "stockpile" but does anyone know how big that stockpile has grown, versus how much has actually been used?

I don't know how it ends, but probably this time *isn't* different, and over a 12 year period and several economic cycles I personally wouldn't want to bet on $120/ton iron ore prices being sustained. My guess is that prices don't stay that high more than three years. China's overspending on capex will at some point have to stop, and real economic activity will not sustain iron ore much above $80/ton.

I do understand that when iron ore prices take off for a few years, market prices for iron ore companies will become very speculative. Investors rarely think for the long term.