Welcome to the End of the Biggest Commodity Boom
After basking in the sunshine of higher prices, iron ore faces a blizzard.
Shutting down the furnace.
Photographer: Kiyoshi Ota/BloombergOil, copper, soybeans and a handful of others monopolized the attention — but of all commodities, the humble lump of iron ore benefited the most from the Chinese economic boom of the last 25 years.
It was an astonishing bonanza: From the late 1990s to earlier this year, iron ore prices jumped nearly tenfold, more than any other major commodity; traded volume tripled; Australian commodity tycoons become billionaires; mining companies turned, even briefly, into Wall Street darlings; and mighty legal battles broke for control of the last untapped mineral deposits.
And now, it’s over: The greatest commodity boom thus far of the 21st century has ended. China inflated it — and China, too, is bringing it down.
The cost of the reddish dirt, which turns into steel inside blast furnaces, has fallen already below $100 a metric ton, down 55% from its all-time high of almost $220 a ton set in 2021. Beyond, the outlook looks somber as Chinese steel demand reaches a zenith. Pinpointing the exact date is foolhardy, but now it’s becoming clear that China hit peak steel demand somewhere between 2020 and earlier this year. The reason? The shift in its economic model to services and away from heavy investment and housing construction.
During previous downturns, Beijing rescued its economy — and thus the iron ore and steel sectors — by indulging in a debt-fueled binge of construction. It’s unlikely that China will do so this time. Don’t take my word for it. Listen to Hu Wangming, chairman of China Baowu Steel Group Corp., the world’s largest steelmaker, who last week predicted a “severe winter” for the sector.
The downturn, he said, would be “longer, colder and more difficult to endure” than he had previously expected. Because China nowadays produces more than half the world’s steel, what happens there matters enormously. Other nations may take over as engines of steel demand. India is the most obvious candidate. Unfortunately for the global seaborne iron ore market, India has enormous domestic ore resources, and is likely to do it without imports for years to come.