Central Planning Fails Again

Iron ore prices continue to fall as China's economy rebalances and futures prices are in backwardation. Near month futures are $57 December 2017 futures are at $49.50. China continues to produce iron ore at high costs mines though, in order to supply a steel industry that refuses to cut production. In addition to losses for iron ore and steel producers, China has lit the protectionist fuse across the globe as steelmakers seek protection from Chinese exports.

FT: Iron ore tumbles to post-crisis era low
Although demand in China has weakened, BHP Billiton, Rio Tinto and Vale — the big three iron ore miners — are pushing ahead with plans to increase production.

They are looking to take market share, betting their low-cost supply will displace high-cost producers in China and elsewhere.
Sounds like the oil industry. How's that working out?

Yahoo: How American frackers plan to beat OPEC
As energy prices began plunging last year, Magnum Hunter began to make some dramatic decisions to slash costs.

It’s not just smaller operators that are slicing costs by that magnitude. Exxon Mobil (XOM) CEO Rex Tillerson said recently that costs for some of the oil giant’s drilling projects in the eastern U.S. have fallen by nearly 50%. “North American tight oil is going to be more resilient than some people think it’s going to be,” Tillerson declared.

However, many analysts are sceptical. Chinese producers have proved difficult to dislodge from the marketplace since decisions to shut state-owned mines taken into account factors other than economics.

About three-quarters of Chinese iron ore mines are in the red, according to remarks on Friday by Yang Jiasheng, chairman of the Metallurgical Mines Association of China.

...Local governments also generally oppose closures that might raise local unemployment rolls.

State-owned metals trader Minmetals, for example, has been unable to get permission to close a costly mine in northern China, in spite of the availability of cheaper imported ore.

“Many of the iron ore mines have signed contracts with steel factories,” said Wang Min, analyst at Lange Steel Information Research Center in Beijing. “Many are still operating because they want to make sure they have stable supplies for steel factories.”
China is producing iron ore at a loss in order to supply a steel industry suffering from overcapacity and puking steel onto the world market.

WSJ: Why Chinese Steel Exports Are Stirring Protests
From the European Union to Korea and India, China’s excess metal supply is upending trade patterns and heating up turf battles among local steelmakers.

In the U.S., the world’s second-biggest steel consumer, a fresh wave of layoffs is fueling appeals for tariffs. U.S. steel producers such as U.S. Steel Corp. and Nucor Corp. are starting to seek political support for trade action.

China’s steel exports rose 63% to 9.2 million tons in January from a year earlier, a rise that puts them on pace this year to beat the 82.1 million tons China exported last year. That number increased 59% from 2013 and was the most steel ever exported by any country this century.

China produces as much steel as the rest of the world combined—more than four times the peak U.S. production in the 1970s. But as China’s growth slows, the excess steel that Chinese industry doesn’t need is washing up overseas.
There's the big puke on the right hand side.

Chinese steel exports will continue to rise

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