when someone says ' they can cure oversupply by stopping producing their 300Mpta' - i laugh and laugh and laugh
time to revisit our business 101 primer - ' the problem of fixed costs.'
AT THE SAME TIME
- in 2004 the world need 300Mtpa in raw steel - by 2012 China has made it 900Mtpa.
So China has led to a roughly 200% increase - of which you can fairly assume that - at normal rates a society of 1bn on a planet of 5bn probably only needs say equal to the other societies,
If it was 2004 that would mean 600Mtpa.
But there's progressive increase in all societies, so I would say 'normal' global raw steel demand is about 700Mtpa.
It takes 1.2mt of iron ore to produce 1Mt of pig iron - so that requires 840Mt of iron ore
So
vale - 510Mtpa from 2017
Rio - 370Mtpa from 2017?
Bhp - 295Mtpa
Fmg - 155Mtpa
then all the rest
1.33Bn tonnes of iron AT LEAST seeking to address a 840Mt demand.
I do expect China will remove some of its internal SOE production once Vale's expansion comes through.
But you will still see rampant oversupply
Unless China or India re-engages in a massive second round of construction - the global iron ore market will collapse in price the next 2 years
The supply will be so abundant there won;t be any 'bid' tension.
all alse being equal, costs will fall into the $us20s - to meet the marginal cost of production of the big 4.
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