Why the China Bears Will Get It Wrong (Again) in 2024

It’s been a while since I covered the all-important iron ore market, so I thought I’d give it some attention today.

As you may remember, iron ore’s most important market, China, was on the brink of collapse six months ago.

That was according to virtually every analyst and mainstream news outlet.

But once again, the latest data from the People’s Republic of China put that idea to bed.

Official figures reported 5.2% GDP growth over 2023, a tad above earlier forecasts of roughly 5% expansion.

It’s certainly a far better outcome than most doom and gloom news outlets predicted last year.

Here’s a couple of examples, below.

My colleague Callum Newman and I were lone voices amid last year’s China paranoia.

At the height of the panic in August 2023, I wrote this (emphasis added).

While [iron ore] imports dipped during COVID-19 the demand outlook remains strong.

Analysts expect shipments to rise between 40–60 million metric tons this year from last year’s 1.11 billion tons…that will be the first rise in three years.

Yet it’s not a story being picked up by mainstream papers.

Instead, ABC, CNN, The New York Times and BBC are all focused on the 20% jobless rate among China’s youth…a group that includes 16–24-year-olds.

But according to CEIC data…jobless rates among 25–59-year-olds reached a record low in July 2023.

It stands at a very healthy 4.1%.

Clearly, this age bracket encompasses the bulk of active workers in China and offers a far better gauge of economic health.

But that works against the bearish China narrative.

Instead…mainstream media remains focused on a group of citizens more likely to be studying, living at home or still in school!

But what about the big elephant in the room, Chinese deflation?

Well again, the data here is far more upbeat than most news outlets would have you believe.

Yes, headline CPI fell into negative territory last month.

But what about the more important figure…core inflation?

Again, that’s not the number being discussed.

Yet it surprised to the upside in July rising by 0.8% and remains well above the lows from 2021 when it dipped into negative territory.

Today it remains at 0.80…a smidgen below its long-term average of 1.25.

That’s hardly cause for panic.

You can read the full article here.

So, what happened after that?

Iron ore miners boomed!

Fortescue [ASX:FMG] has led the charge up 45% since late August.

Not bad for one of Australia’s largest companies.

Iron ore’s strength was one of the biggest surprises from 2023…that’s why it pays to shift your attention AWAY from the mainstream.

Which is exactly why I’m not giving too much weight to the latest headline grabbing shock.

If you haven’t heard, a Hong Kong court ordered Chinese developer, Evergrande Group, to liquidate this week after it was unable to reach a restructuring deal with creditors over hundreds of billions of dollars it owes.

Evergrande is one of China’s biggest property developers.

Predictably, the ABC rolled out a slew of scaremongering articles this week predicting ‘another’ imminent China collapse.

Wash and repeat.

No doubt, hard-hitting headlines bring in readers…but they’ll do little for your portfolio or your ability to rationally assess the market.

So, what’s next for iron ore?

Can this commodity continue defying expectations and rise to new highs this year?

Well, probably not, if you trust the latest forecasts from Australia’s Treasury department.

It expects prices plummeting to just US$60 per tonne by mid-2024.

Right now, the commodity hovers around US$130 per tonne.

But this wouldn’t be the first time the Treasury gets its outlook horribly wrong for Australia’s most important export.

Recall 2022…crystal ball gazers at the Treasury department forecast iron ore falling to just US$55 per tonne by the end of Q1 2023.

Yet, over that period the metal never dipped below US$120.

More than 100% off target estimates!

Ironically, we’re told we can’t rely on official data from China.

But are the figures published by the west any better?

In my mind, there’s no immediate concern for iron ore in 2024.

Just take a look at the chart below.

Since bottoming in October 2022, iron ore continues to gather pace.

The commodity is up more than 58%.

Despite several major setbacks over the last 18 months, including hysterical media reports of an imminent Chinese crash…iron ore CONTINUES to trend HIGHER.

It’s why I don’t expect China’s economy to implode anytime soon.

Longer term though?

Well, that’s a different story.

While commentators remain fixated on China’s internal woes, the REAL economic threat will arrive from abroad.

An issue that will change the landscape for investors in Australia.

I’ll give you a snapshot of that in next week’s edition of Fat Tail Daily.

I’m stunned why no one is recognising it.

That’s despite it unfolding right in front of us!

The evidence is clear.

I’ve outlined all of it in my latest report to my paying subscribers.

If you want in on the action, please click here. Enjoy!

Regards,

James Cooper,
Editor, Mining: Phase One and Diggers and Drillers