In the long run, China is trying to move away from infrastructure and manufacturing. Over the years they brake, accelerate, brake, accelerate...as they try to slow down without causing a recession.
In the medium term, I think they are in the brake stage now. They will be slowing down now, so they can stimulate in 2020 for Xi's election the year after. China's growth credit (Total Social Financing plus Bonds) is slowing:
Source: MB Webinar - Nucleus Wealth Mgt (abt 30 mins in).
In the short term, there are record iron ore stocks at Chinese ports. Most of it is low grade ore, unused because of China's pollution restrictions.
FMG is the 4th largest global iron ore supplier after Vale, BHP and Rio, and also 4th place on the cost curve. It produces mostly lower quality 58% ore, versus high-quality 62% ore from the other three, and low quality 30+% from domestic Chinese producers. Upgrading their mix will take time - meanwhile they have have to accept discounts.
FMG's stock price has recently broken support:
I am short 6,600 shares of FMG at AUD 4.27. This is a short term trade, hoping to make 20-30%.
Main risks are:
- In the short term, the market shoots upwards if the correction ends.
- China may rescind their pollution curbs.
- In the long term, steel may be used for OBOR. Or for buildings/infrastructure for the booming US economy. Including a big, beautiful wall.
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