Any recession will reduce the demand for raw materials, however I don't believe it will be all that bad if it is only the USA that goes into recession. There is plenty of talk that China will have problems exporting steel etc.... the truth is that China needs an awful lot of steel just for it's domestic needs. Asia is our natural market for raw materials.... of course if the US doesn't need as many finished goods from Asia then there is an effect. I think that this is smaller than people think though.
The Chinese will of course claim that steel demand will drop therefore iron ore prices should not rise too much. The producers will point to the supply gap and the difference between the spot and contract prices.
IMO I still think the price rise will be around 40-50% this year.
Yes, I do see a proper spot/futures market in the future. The reality is that there are many new producers coming on stream over the next few years. This will lead IMO to a lot more ore being sold at spot.... and this will lead to a genuine futures market. I also see BHP and RIO (and probably FMG) selling more tonnes at spot than previously.
Corporate activity won't stop duing this market correction. Consolidation will continue IMO.
Regards, Tony.
PLV Price at posting:
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