The Housing Bubble

S E L L O U T

Iron ore price sinks to fresh five-year low
The Australian
September 11, 2014 9:41AM
Sarah-Jane Tasker
Reporter
Sydney

THE iron ore price, which continues to slide and is hovering at five-year lows, has further to fall, according to China experts.

The price of the steelmaking commodity continued its decline overnight, losing another 1.2 per cent to hit a fresh five-year low of $US82.20 a tonne. The commodity has now lost 40 per cent on the year.

Deutsche Bank’s Hong Kong-based analyst, James Kan, has argued that more production needed to be removed from the market before demand and supply of iron ore moved toward equilibrium.

Mr Kan said the Metallurgical Mines’ Association of China recently told the 2014 China iron ore industry summit that ore production cost had decreased 5 to 10 per cent year-on-year, which he said meant that the iron ore price had more room to fall than expected.

“Iron ore is in over supply both globally and in China. However, we have not seen raw ore production declines yet,” he said.

The analyst added that with 100 million tonnes of excess supply still to be squeezed out, he believed that iron ore prices were still facing headwinds and that further high-cost producers would leave the market.

“We still see raw ore output increases this year compared to last,” he said.

“We are waiting for production cuts and believe the cost curve will move further to the left, and until these gain momentum, the price has further to fall.”
…

UPDATE 1-Iron ore futures struggle as oversupply woes linger
Thu Sep 11, 2014 1:24pm IST

* Spot iron ore has fallen nearly 40 pct this year

* Traders clearing ore stocks, mills buying hand to mouth - trader (Updates prices)

By Manolo Serapio Jr

SINGAPORE, Sept 11 (Reuters) - Iron ore futures in China steadied on Thursday and those in Singapore extended recent losses amid abundant supply and slower growth in Chinese demand that have slashed spot prices of the steelmaking commodity by nearly 40 percent this year.

The weaker steel market in China, the world’s biggest consumer and producer, is also a major strain for iron ore, with slower consumption prompting steel mills to cut prices for next month.

Iron ore for January delivery on the Dalian Commodity Exchange closed unchanged at 585 yuan ($95) a tonne. It fell to 579 yuan earlier, not far off a contract low of 570 yuan reached on Wednesday.

The November iron ore contract on the Singapore Exchange dropped half a percent to $82.07 a tonne.

Along with miners unloading cargoes in the spot market, Chinese traders are also clearing their stocks at the ports, piling further pressure on prices, traders said.

“Quite a few traders in Tangshan and Tianjin are clearing their port stocks, selling some cargoes at a loss as prices could fall some more,” said an iron ore trader in Shanghai.
…

Asian Business News
Asian Investors’ Iron-Ore Bets in Australia Fail to Pay Off
Low-grade Magnetite Looked Attractive Amid Fears of a Global Iron-Ore Shortfall, But a Fall in Prices Is Hitting Investments
By Rhiannon Hoyle
Sept. 11, 2014 1:03 a.m. ET
Investors spent billions of dollars on iron-ore deposits in an attempt to break BHP Billiton and Rio Tinto’s stranglehold on the commodity. Here, BHP Billiton’s Mount Newman iron ore mine in Western Australia. BHP Billiton/Agence France-Presse/Getty Images

SYDNEY—For much of the past decade, Asian investors spent billions of dollars on iron-ore deposits in the Australian Outback in an attempt to break BHP Billiton Ltd. and Rio Tinto PLC’s stranglehold on the commodity.

They bet on the wrong type of iron ore.

Companies including China’s Ansteel Mining Co. and Japan’s Mitsubishi Corp. have halted or scaled back ambitious plans to open up a new mining hub in Western Australia targeting a low-grade ore known as magnetite. Magnetite is more costly to produce than hematite, the type of ore typically found at BHP’s and Rio Tinto’s mines.

When worries about a global shortfall in iron-ore supply drove prices of the commodity to a peak above US$190 a ton in 2011, magnetite looked attractive. Much of the Asian investment flowed into the Mid West region of Western Australia estimated to contain 13 billion tons of magnetite ore—enough to meet Chinese demand for around a decade at current rates.

But a fall in iron-ore prices to a five-year low below $83 ton is threatening those investments. The most-prominent example of a loss-making magnetite mine is the US$10 billion Sino Iron project in Western Australia developed by Citic Pacific—recently renamed Citic Ltd.—which started up last year.

China’s Sinosteel Corp. hoped to produce magnetite from the Koolanooka deposit acquired through its 1.36 billion Australian dollar (US$1.24 billion) hostile takeover of Midwest Corp. in 2008, but progress has been slow.

One thing Asian investors failed to reckon with is the aggressive response of the world’s biggest iron-ore miners, which have been ramping up output of more-profitable hematite ore in Australia’s Pilbara region where they have enormous efficiencies of scale. That has triggered concerns about a global glut of iron ore that will take years to clear.

“The future of new magnetite projects in Australia is no longer clear,” said Daniel Morgan, a Sydney-based analyst at UBS. “There’s a lot of hematite coming into the market, and it can come quicker and at a lower cost.”
…

Australian iron ore miners will do well out of shake-out - eventually
September 11, 2014 - 6:16AM
Michael Pascoe
BusinessDay contributing editor

Iron ore is back where it was five years ago, but remains sharply higher than at any point before that.

Iron ore is back where it was five years ago, but remains sharply higher than at any point before that. Photo: Louie Douvis

It takes two graphs to put the current mini-panic over the iron ore price into perspective, to realise that Australian miners should eventually do quite nicely out of the present shakeout.

That’s with the obvious caveat that first they have to survive the rationalisation. Some won’t.

That’s unfortunate for the marginal mines’ owners and employees, but it’s hardly surprising that the highest-cost producers fail when prices come off the boil. It’s as normal in mining as drought is in farming. And from the overall Australian economic viewpoint, it doesn’t matter.
…

ft dot com
September 10, 2014 5:55 pm
Iron ore slides to five-year low
By Neil Hume, Commodities Editor

Iron ore has continued its seemingly inexorable slide with the price of the steelmaking commodity slipping to a fresh five-year low on concerns about rising supply and slowing demand.

The raw material, which is critical to the profitability of several large mining groups including BHP Billiton, Rio Tinto and Vale, has dropped by almost 40 per cent this year – the worst performance across metals and bulk commodities – as a wave of new seaborne supply has hit the market.

But over the past month, concerns about a deep supply glut have been aggravated by indications and fears of slowing demand in China, which buys about two-thirds of the world’s iron ore.

Figures released this week showed China imported 74.9m tonnes of iron ore in August – down 9 per cent from July and roughly equivalent to June – as steel mills cut operating rates to their lowest level since March.

Wednesday’s decline – the price of benchmark ore for immediate delivery into China dipped $1 to $82.20 a tonne – came as analysts at Goldman Sachs said the long period of above trend in profitability enjoyed by the iron ore industry was at end, destroyed by the billions of dollars major producers have ploughed into new, low-cost capacity.

“In our view, 2014 is the inflection point where new production capacity finally catches up with demand growth, and profit margins begin their reversion to the historical mean; in other words, the end of the Iron Age is here,” wrote Christian Lelong, analyst at Goldman.
…

Iron ore futures struggle as oversupply woes linger
Thu Sep 11, 2014 11:05am IST
* Spot iron ore has fallen nearly 40 pct this year
* Traders clearing ore stocks, mills buying hand to mouth -
trader
By Manolo Serapio Jr

SINGAPORE, Sept 11 (Reuters) - Iron ore futures in China and
Singapore slipped on Thursday, adding to recent steep losses,
amid abundant supply and slower growth in Chinese demand that
have slashed spot prices of the steelmaking raw material by
nearly 40 percent this year.

The weaker steel market in China, the world’s biggest
consumer and producer, is also a major strain for iron ore, with
slower consumption prompting steel mills to cut prices for next
month.

Iron ore for January delivery on the Dalian Commodity
Exchange was off 0.2 percent at 584 yuan ($95) a tonne
by midday, not far above a contract low of 570 yuan reached on
Wednesday.

The November iron ore contract on the Singapore Exchange
dropped half a percent to $82.07 a tonne.

Along with miners unloading cargoes in the spot market,
Chinese traders are also clearing their stocks at the ports,
piling further pressure on prices, traders said.

“Quite a few traders in Tangshan and Tianjin are clearing
their port stocks, selling some cargoes at a loss as prices
could fall some more,” said an iron ore trader in Shanghai.
…

Iron ore mining
Down but not out
The big iron-ore miners are still profitable in spite of lower prices
Sep 9th 2014 | Business and finance

FOR decades the iron-ore trade was boring, but stable. Annual contracts, predominantly made between Japanese steelmakers and Australian miners, left little room for the price volatility that plagued other commodities such as oil. Profit margins for iron-ore miners were thin, even if relatively consistent compared to other metals.

This arrangement, however, has been undermined by two consecutive upheavals. First, China’s economic boom sent demand, along with ore prices, soaring. Then, even more abruptly, the global financial crisis caused both to plummet. Yearly contracts proved too inflexible for such volatility and in response a system of spot trading arose. The spot price duly rose, as China’s economy continued to prosper. By 2011 spot prices were almost three times higher their mid-recession low. But flexibility cuts both ways; since the start of the year iron-ore prices have fallen by 38% to $83 a tonne, their lowest level since October 2009 (see chart).
…

Iron ore price in fresh slump
Daniel Palmer
13 hours ago

The price of iron ore has sunk to new depths overnight, losing another 1.2 per cent to hit a fresh five-year low.

Benchmark iron ore for immediate delivery to the port of Tianjin in China is currently trading at $US82.20 a tonne, down sharply from its $US83.20 closing mark in the previous session.

The commodity has now lost 40 per cent on the year and has seen just one positive trading day in the past 17 amid concerns about rising supply from Rio Tinto, Vale, BHP Billiton and Fortescue Metals Group and weakening demand from key customer China.

The latest falls followed a revision to pricing estimates from Goldman Sachs, with analysts at the investment bank suggesting more pain could be in store.

“The price decline has been dramatic, but a weak demand outlook in China and the structural nature of the surplus make a recovery unlikely,” Goldman analysts Christian Lelong and Amber Cai wrote in a note titled ‘The End of the Iron Age’.

“Lower prices for iron ore and steel are unlikely to boost demand in a material way. Instead, the day when steel production in China will peak gets ever closer.”
…

Iron ore, coal face chronic price pain: Calderon
Barry Fitzgerald and Sarah-Jane Tasker - The Australian
10 Sep, 4:21 AM

Former senior BHP Billiton executive Alberto Calderon has warned Australia faces a permanent fall in prices for its major ­exports of iron ore and coal as growth in the Chinese economy becomes increasingly driven by private consumption.

And the Yale-trained professor of economics — one of the contenders for the top job at BHP that went to Andrew Mackenzie — said it would be wrong to pin economic hopes on the burgeoning LNG ­export industry because the gas was expensive, and there was a new supply challenge coming from Russia and the US.

Speaking last night at a Bloomberg forum in Melbourne, Mr ­Calderon painted a bleak outlook for Australia’s biggest ­export earners of iron ore, metallurgical coal and thermal coal, with the first two steelmaking raw materials. “On one side, we will see almost no growth in Chinese demand for iron ore, even if there is some growth in steel,’’ Mr ­Calderon said.

“On the other side, we are seeing a wall of iron ore supply being dropped in to the market by the large mining companies. It is not difficult to see why iron ore prices have collapsed and why they will go even lower.’’ Mr Calderon was previously part of BHP’s inner circle. Before leaving last year he was in charge of the ­aluminium and nickel division, as well as corporate development. He also continued on in a special advisory role to Mr Mackenzie for some time. His comments come as iron ore has collapsed from last year’s ­average of $US135 a tonne to a five-year low of less than $US84 a tonne.
…

If you like your iron ore, you can keep your iron ore.

Now this is interesting. Monterey Park is the traditional gateway for Chinese immigrants to Los Angeles. A couple of days ago you posted about Hacienda Heights, CA. Same situation.

I’d be interested to see what’s happening in Alhambra, San Gabriel, Temple City, Arcadia, Rowland Heights, Walnut, and Diamond Bar.

Number of aging Americans paying student loans soars -U.S. report
By Scott Malone
BOSTON, Sept 10 Thu Sep 11, 2014 1:55am IST

(Reuters) - The rising cost of higher education is dogging Americans into retirement, with people aged 65 and older still carrying some $18.2 billion in unpaid student loans, according to a federal report released on Wednesday.

While the Government Accountability Office report noted that relatively few U.S. households headed by people 65 or over are carrying student loans, the value of the unpaid debt had spiked from $2.8 billion in 2005, before the financial crisis.

That debt is concentrated in a small number of homes. Just 4 percent of households headed by someone 65 or older carried student loan debt as of 2010, up from 1 percent in 2004.

“Some may think of student loan debt as a just a young person’s problem,” said U.S. Senator Bill Nelson, who heads a Senate committee on aging and held a hearing on the findings on Wednesday. “As it turns out, that’s increasingly not the case.”
…

I find that hard to believe. I graduated over 30 years ago and I am still 12 years younger than this bunch. College was extremely cheap at state schools in the 1960’s and ’70s. Most of my friends worked and lived like paupers; but, nobody had any debt to speak of. How can anyone of that age have college debt?

I call BS on this article.

$18.2 billion is loose change under the couch cushions.

Let’s talk about the $1.2 trillion elephant in the room of total outstanding student loans and how there is no “pent-up demand” for $500,000 starter homes today, tomorrow, or ever.

The Catalans, like the Scots, want to remain in the EU.

Scots Wha Hae!!!

Washington Post blurb:

“In this brave new farrago of medium and message, U2 seem to have transmitted all of rock-and-roll’s misguided egotism into one ridiculous statement: Our music is technically worthless and everyone in the world should hear it. That’s what this band is “all about,” and Apple is happy to do its part, making you the owner of these songs without asking your permission. Which is disgusting.”

I find U2’s stunt to be rather ingenious, really.

One of the first (if not THE first) to force their music down the throats on the masses. That they have done it through Apple (Messiah of the Digital World - LOL) is hilarious! Perhaps Apple’s legions of moonbats will find something else to glom on to.

I certainly hope that no one who voted for ObamaCare is crying foul over U2.

Whether the music is any good - who cares. Most music over the past 20-25 years was made to be consumed then disposed of. Much like TeeVee.

I have Achtung Baby and War - and that’s all the U2 I need.

Turns out iTunes users aren’t pleased about involuntary downloads of a crappy album by a corporate sell-out has-been band (U2). LMAO.

What happens if you delete the songs? Will iTunes redownload them?

Meanwhile, Spanish Prime Minister and “former” Goldman Sachs exec Rajoy tries to prevent a vote on Catalan independence as he continues to push the same neo-liberal economic policies (austerity for the masses, unfettered looting and crony capitalism for the 1%) that have brought Spain to its knees.

http://www.bloomberg.com/news/2014-09-11/scots-fuel-risk-catalan-push-defeats-rajoy-euro-credit.html

Ah, yes…the success of socialist policies…

Countries in Europe talking about splitting apart…hundreds of thousands fleeing California as new socialists arrive to feed at the state teet.

BTW, someone here ready to define “crony-socialism”? Surely there are cronies outside capitalist enclaves.

I have two anecdotes to add to your peoplewatching, Ray.

(A) To fight grade inflation, Cornell University used to* award grades solely on the grade curve. That is, students were graded against each other instead of the material. Suddenly, a 92% was a C, and pity the poor guy who earned 85% and was graded D. Try to explain that “yeah, the C means it’s the middle of the pack, but this pack is one of the smartest packs in the nation.” Doesn’t matter to the computerized resume reader or even the interviewer. DE-nied. Out of this came rumors of Cornell students sabotaging each other’s labs, fighting for special profs, sophomores taking freshman classes, and probably other cheating practices, just to separate themselves from the C pack.

(B) When I was growing up, we used to watch Wimbledon on TV. After the finals, the winners were congratulated by the Duchess of Kent. My mother pointed out to me how gracious and polite and civil and nice the Duchess was, HINT HINT.

The anecdotes sound unrelated, but they both point to the same thing that you’re observing: the lack of civility is NOT dumbing down. It’s smartening up. People are now wise to the fact that there aren’t enough jobs to go around, and it’s cutthroat out there. Here at Cornell, you have the smartest kids in the country, all of whom deserve a job and would do well, being reduced to manipulation and cheating to compete for the few jobs there are for a “C” average. And here you have this Duchess, who’s all gracious and nice, awwww. Well DUH, it’s not hard to be civil when you’ve been filthy rich since birth and never had to worry about competing for grades or jobs. Hey mom, give me a few million and I can be gracious and civil too.**

There are not enough jobs to go around, and no has the luxury of being civil.

——————
*I googled it to see if Cornell still grades on a curve. They do, but they tried to make it fairer with another layer of guidelines. It doesn’t seem to be working. Actually I’m rather surprised anyone still goes to Cornell.
**Which, IMO, is why Democrats loved the late Elizabeth Edwards but despise Ann Romney. Both were rich, but Elizabeth was a sweetheart and Ann… does not appear to be.

When you have the example of a president who ignores laws he doesn’t like, makes up laws he wishes he had and uses the full might of the IRS to go after his political enemies..

Why should anyone be civil? Or follow laws?

No, that’s not civility that is going wanting, it is morality. We began down is path decades ago.

What this board needs is a serious discussion of how the rise and use of credit has destroyed much of society.

Credit has not just ruined the economic aspects of society.

Credit everywhere means getting an education is increasingly pointless.

Credit everywhere means that ethics and morals are not rewarded.

Credit everywhere means less need to assume personal responsibility.

Credit everywhere means less need to focus on that which produces wealth.

Credit everywhere means much less personal freedom as the government decides who wins and loses.

Credit everywhere means much less personal freedom as corporations decide who wins and loses.

Credit everywhere reduces the need to establish roots and build families.

Credit everywhere reduces need to get married - or stay married.

moral hazard blame Bernake

it will get worse

Raymond K Hessel:Only the high-end real estate market is booming, as the Fed’s policy of buggering the 99% for the enrichment of the 1% continues the systemic distortions in the speculative casino economy.

I think it’s a certain sense of being out-of-touch with the public at large that leads people like Krugman and Summers to extol the benefits of bubbles. Economics is still a social science. It’s not like blasting beams of matter at each other in a supercollider, then running the numbers to see if a theory is experimentally proven (although there is a desire to do this in the social sciences, to emulate physics, a phenomenon known as “physics envy”). So, there is a seat of the pants component to economic theories. And as I noted yesterday, Krugman and Summers hobnob with the Davos crowd, not a middle class crowd, so the feedback they receive, and the benefits they obtain from bubbles are quite different than what the population at large receives.

As I noted yesterday, during a bubble ramp-up, the sheep are fattened and they’re happy. During the deflation, the sheep are slaughtered, and the slaughterhouse is happy.

And I’m referring to any bubble, be it stocks or houses or copper.

Scotland has a HUGE free sh*t army.

We will see…

BINGO

On the Border is having $2 Queso all day long (with purchase of an adult entree)….

Who says America’s best days are behind us?

America isn’t a country, it’s a game

I think that it’s more like a shopping mall.

“Happy FEAR™ Day”

There is that pomposity and self-righteousness we all love from the great basement appeaser.

Dont you have some whoppers to make?

Your tinfoil needs adjusted, it’s not receiving the correct narrative

Iranian dictator Saddam Hussein flew his planes into World Trade Centers and baked the yellow cakes and threatened our friend and ally Israel because freedom isn’t free and these colors don’t run and we have to fight them over there so we won’t have to fight them over here and power of pride and let’s roll and those who threaten peace loving peoples with phantoms of lost liberties only give aid and comfort to the terrists

Articles from 13 years ago?????

I thought the Messiah with the most transparent administration in history would fix all that…

As well as have the oceans start receding

And have the world love us

And bring peace to the middle east

In these totally destroyed offices, rested all the hard copy and computer files pertaining to the investigation and where the money could have gone. Sadly, all the data and information was lost.

No offsite tape backups or mirrored storage?

Which makes me wonder about the missing IRS emails. Don’t they back up their data? Cuz if they don’t, a server crash would lose everything.

I wonder how much nat gas a tanker could hold? Are all the pipelines coming into poland from russia? any other port that has a pipeline heading up that way?

I guess thats what the power struggle is all about in that region.

It is going to be a cold winter in eastern Europe.

Got wood?

“Perhaps poking the bear wasn’t Europe’s greatest decision.”

It makes you wonder about Germany’s decision to end its nuclear energy program, a decision made by the ex-German chancellor Gerhard Schroder (who is now CEO of Russian energy giant Gazprom) and greatly sped up under Putin’s buddy, Russian-speaking, East German, Angela Merkel, who will probably also retire to some cush job with a Russian energy company.

here it is. The breakfast of champions.

http://picpaste.com/pics/f3e56dc3c4a79b9e8283aeac2125f779.1410448735.jpg

I’m glad I’m not much into sports these days - partly for that reason. I’m an atheist who is very religious about his diet. Colleagues are too snobbish to invite me to lunch anyway. They eat the standard American diet, but are not really obese. We have very few things in common.

crater

Ben, is your daily page viewership going up? That would be a leading indicator of a downturn in the housing market.

I guess they can keep printing money to pay for all this?

The only areas around the country not sinking are the tech-creative centers like the San Francisco Bay Area and places where energy is produced. The rest of the country has become dependent on hand-outs and debt-fueled economic stimulus programs. Gripping economic fear has spread across the country, and yet the president has decided to embark on another crusade that will likely cost $1 billion per day.

See! Had she partaken of our now legal weed, this never would have happened. When the calls came from Syria she would have answered the phone and said “Mohammed’s not here, man!”

I will put a case of beer on that she is kool aid drinking obama supporter…

That one belongs in a burqa. Ick….

It’s all part of the Feds confidence game. They want everyone to believe they’ll have it made if they can just get that particular job. No different than “housing is an investment” scam they’ve perpetrated.

Many aviation industry executives, however, believe otherwise. In its second quarter results, Skywest cited a “pilot shortage” as a major cause of its $14.7 million loss. Skywest new hires earn $22,000-25,000 annually (average pay for an interstate trucker is around $50,000). A recent Government Accountability Office report put it well: “Data indicate that a large pool of qualified pilots exists relative to the projected demand, but whether such pilots are willing or available to work at wages being offered is unknown.”

I’m not sure why they called it Super Bowl XLVIII. Shoulda just gone with Super Bowl X>VIII.

Maybe they could do a compare/contrast between the NEA and a prison gang.

“Go Time” hasn’t happened yet, so any comparison of Obama to Hitler is not yet valid

Give it time…

It looks like the FHFA is going to have to put taxpayers on the hook for larger subsidy payments to lenders in order to get the banking sector to buy into this newfangled affordable housing program.

Heard on the Street
Burned Banks Unlikely to Embrace Mortgage Fix
By John Carney
Sept. 11, 2014 12:19 p.m. ET

The latest plan to juice the mortgage market and improve access to credit could backfire.

The Federal Housing Finance Agency, which regulates Fannie Mae (FNMA +7.23%) and Freddie Mac, (FMCC +7.03%) wants to make it easier for low-income Americans to take out mortgages and refinance home loans. Late last month, it released proposed goals for Fannie and Freddie aimed at increasing their support for such loans.

Under the FHFA proposal, loans financing single-family-home buying by low-income families would continue to make up 23% of mortgages purchased by each of Fannie and Freddie. The share of low-income family refinancings, however, would rise to 27% from 20%. In addition to this, regulators would have the companies raise the share of purchases of mortgages in low-income areas with sizable minority populations.

The FHFA hopes that increasing demand for low-income mortgages from Fannie and Freddie will spur lenders to make more of these loans. That is certainly the way things worked before the financial crisis, when lenders could be counted upon to quickly adapt their lending practices to satisfy the appetites of the mortgage giants that dominate housing-finance markets.

This time around, lenders might not be so willing to follow Fannie’s and Freddie’s lead. The risk is that the expansion of low-income goals may actually lead to a lending contraction. That is because banks don’t want to make any type of loan that they wouldn’t want to keep on their balance sheet.

As multibillion-dollar mortgage settlements with the Justice Department and other government entities have made clear, doing otherwise opens them up to liability for allegedly faulty underwriting. And repurchase demands can force them to take back loans they never planned on holding.

What’s more, persistently low interest rates and narrow credit spreads mean the rewards for these risks are vanishingly small. It makes more sense for a bank to just hold the line and only make loans that its internal models consider low risk.

This could kick off a negative cycle that feeds upon itself: Without growth in low-income lending, the FHFA’s new goals could just shift demand away from other types of mortgages. Banks will then be faced with the choice of shrinking their other mortgage books or piling additional mortgage exposure onto their own balance sheets. The latter seems unlikely as banks are still attempting to slim down their home-loan exposure.
…

No surprises, really, but some journalists have astutely connected the plummeting price of iron ore to the incipient housing market collapse in China.

China’s housing market is on the brink of collapse. Should Australia be worried?
A big fall in house prices in China would affect the price of our exports and reduce our tax revenues

Housing under construction near the port city of Tianjin in northeastern China. Housing under construction near the port city of Tianjin in northeastern China. Photograph: Allison Jackson/AFP/Getty Images

After a decade of riding on the back of China with little concern about falling off, recent data has many economists worried that the ride is about to get much bumpier.
…
The Chinese government doesn’t even want growth that fast; instead it wants a more steady, and hopefully sustainable growth of around 7.5% rather than the 10% plus annual growth it averaged from 2002 to 2010.

But the concern is whether or not China can achieve even this level of growth, or whether a fall is about to occur.

Among the signs we can look at that have the biggest impact on Australia are Chinese manufacturing and construction – the better they are performing the more they will demand all that metal we have lying under our ground.

The latest Chinese manufacturing purchasing managers index has been good, if not spectacular. The latest measure came in at 51.1, a slight fall from the previous month’s 51.7. A score above 50 means manufacturing is generally expanding; below means it is contracting:

Similarly, China’s annual growth of industrial output, while well below pre-GFC growth of over 14%, is steady at around 9%:

So where does the concern come from?

In the past few months there have been a number of worrying signs that the booming Chinese real estate market is about to burst.

For example, the Wall Street Journal recently reported a Chinese study that found in 2013 22.4% of houses in China’s urban areas were vacant – up from 20.6% in 2011. This suggests a fairly serious glut of houses in China. And when there is an over-supply of something, the price for that item inevitably falls.

In July, monthly residential house prices rose in only six of the 70 major Chinese cities. If we look at the growth of residential housing prices across five of the major Chinese cities, the drop off in prices is clear to see:

The decline has also occurred in commercial buildings, with the growth of sales in commercial buildings for the first seven months of this year 8.4% below what was achieved last year:

Similarly, the growth rate of investment in real estate development has dropped off. This time last year it was growing at around 19% year on year; now it is down to 13.7%.

Since January 2013 iron ore prices have fallen 43% in US dollars, and 48% in Australian dollars. Since just December last year, the price has fallen 37% from US$135 a tonne to US$85.70 a tonne – the lowest since September 2009.

This has a number of effects. Firstly it makes it tougher for our mining companies to make a profit. Analysts suggest that for BHP to break even they need a price of US$51 a tonne. And it has been reported that they are about to increase exports from 225 million tonnes to 290mt.

But while they’ll continue to make a profit, it’s worth noting that if the price of iron ore is at the December price of US$135 a tonne exporting 225mt would make BHP roughly $18.9bn in profit; but if they exported 290mt at $US85 a tonne, they’re looking like only making a profit of around $9.86bn. So yes, they’re making a profit – but less than they would have expected 12 months or even just six months ago.
…