Every morning at 6am I awaken to the clanging of steel against steel at the construction site nearby. Actually, all of China is and will be a construction site over the next decade, so iron ore producers in Australia and Brazil will do well. The construction industry and infrastructure sector in China next year will continue to power ahead with central government’s blessing, as policy makers have said they will continue fiscal stimulus until they are confident the economic engine has been sufficiently primed to run on its own. Though there is a glut of steel products like rebar in Chinese warehouses for export to countries like Vietnam; they still need to purchase ore for import to produce the higher quality stuff for building construction. So, the Chinese central government is actively trying to close down small steel producers, while at the same time its larger producers are running down their stocks of higher-grade steel, setting the expectation that ore prices may rise to double-digits next year on the back of accelerated demand in China.

Looks like I’ll have to steel myself for more construction to come.

Further reading: Bloomberg (Nov 17, 2009), Bloomberg (Nov 19, 2009), CER (Dec 4, 2009), CER Daily Briefing (Dec 4, 2009)