I’d be doing the same thing if I were them
One of the puzzles in markets at the moment is the buoyancy of iron ore.
It’s been holding up for years.
Even as one of the primary demand drivers – Chinese property – collapses.
In the 2010s the massive urbanisation program in China, which ended up constructing thousands of apartment towers, was a huge source of demand for iron ore.
(Remember when we were talking about the Chinese Century? About how that would boost demand for Aussie minerals for 100 years? Well, turns out a century doesn’t last as long as it used to.)
Anyway, once China had realised it had created dozens of ‘ghost cities’ new housing construction stalled – it has been falling for 5 years or so – in a market where housing starts are pretty much dictated by the government.
In part that’s driven by falling property prices. Most indicies have been falling for four years now:
No one wants to buy a depreciating asset, so no one wants to buy off the plan.
Projects have started, but with no-one buying, unfinished projects are stacking up in China at a mind-boggling rate::
Another way to grasp the scale of this unprecedented crisis is through the “Magic Chart” below. It compares cumulative housing starts with cumulative completions in China since 2000. Beginning in 2015, a widening gap emerges—now totaling 10,345 million square meters of started but uncompleted housing as of May 2025. At an avg apartment size of 81.5 sqm, that translates to 126 million unfinished units—roughly equivalent to the entire housing stock of the United States.”
That’s insane.
And with housing construction falling, steel production is falling too.
According to Westpac analysts, Chinese steel production in Q2 2025 is likely to hit the lowest level since 2018.
So if production is cratering, demand for iron ore must be collapsing too right?
Nope. In fact, iron ore imports have surged above their 5-year average.
Bit strange isn’t it? Steel demand is tanking with housing construction, steel production is falling, but imports are surging on to record highs, and with that, the price of iron ore is also holding up.
What’s going on?
Well, the answer to that seems to be strategic stockpiling. According to Westpac:
China Mineral Resources is furiously using prices below $100 to build a vast official iron ore stockpile – in line with the same policy for nickel, lithium, cobalt and copper.
I wonder why?
China is building the mother of all iron ore stockpiles.
Maybe they worry that they’re about to get cut off from the global economy – the way the west has tried to do with Russia.
Or maybe they think that they’ll need to turn all that iron ore into battleships in the near future.
(None of that is stupid. I’d be doing the same thing if I was them.)
But, presumably, at some point, China will think that the stockpile is big enough, at which point demand drops to zero.
So far demand for Aussie iron ore, and the iron ore price, is holding up.
But it could all be about to evaporate.
And if that happens, you can forget ever seeing a budget surplus in again in Australia
… for at least, I dunno, a century.
JG.