Proposed China Boycott of Aussie Iron Ore Majors

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Just a reminder that you can sign up for Friday’s Freedom Factory conference in Perth here. Your editor has finally selected a title for his talk on Friday afternoon: Why All Libertarians Should Be Institutionalised. If you’re in Perth, you can stop by during any part of the day, or show up for the dinner. But please make sure you book your spot today or tomorrow.

Ron Manners, the founder of the Freedom Factory, sent a note this morning from Hong Kong in which he poses a valid question: why isn’t anyone worried that Australian miners, with their technical skills and business experience, are choosing to open more and more mines overseas and fewer here in Australia? Is the country exporting its future in the form of its most talented miners and entrepreneurs?

It’s a complicated issue. For example, Diggers and Drillers editor Alex Cowie has recommended a handful of Aussie-listed firms whose main resources and assets are overseas. There are certainly high-quality resources in Australia. But for a variety of resources Alex has outlined, these firms have taken their shop overseas. And from a shareholder perspective (if not a national economy perspective), it’s working out alright.

Speaking of Alex, he’s working from home one day a week now as a new dad. But we asked him via email if the proposed boycott of the Aussie iron ore majors (BHP and Rio) by the China Iron and Steel Association (CISA) was having effect on the smaller iron ore stocks he’s recommended. Incidentally, we wouldn’t expect the move to stick. The CISA famously bungled last year’s ore negotiations and is either too combative, or not able to corral China’s diverse steel producers into concerted action.

In any event, there HAS been some action in the ore juniors. Alex writes that, “Our junior iron ore recommendations are both up very nicely since the news broke. One of them has already started producing iron ore and has felt the full benefit, rising 12%. The other one is a few years from producing so is up 4%. Both are great results in just a few days. Between the two companies, they are now up 28% on average since we recommended them in February.”

He elaborated, “The changing pricing mechanism and the massive jump in the iron ore price recently has been another driving force in all companies involved in iron ore, from BHP to the smallest of the juniors. There have been some takeovers already and more are expected. This new move from China could change the playing field in the sector a bit. A takeover from a major suddenly looks less logical or appealing.”

“It will be interesting to see if China takes the same approach to coking coal, as there have been similar price changes amongst the majors there as well. We recommended a developing coking coal company recently, and subscribers that bought in are 10% up in less than two weeks. This company is more targeted at the Indian market, so should not be affected if China pulls the same stunt with coking coal.”

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Check the addition to the Air Pacific route network from Fiji starting this May. What’s that? Christmas Island no less …

    Big new bilateral trade in Labor party mates’ problems?

    Big unwind of the Cosgrove big stick approach?

    Sits right alongside Australia’s push with its anglo mates to sideline the Fijian army from UN peacekeeping work doesn’t it?

    And maybe just maybe you can smell a NSW Labor right deal? But that would need a Habibi and a property developer mate already having dibs on some Fijian land or service infrastructure wouldn’t it?

    Don’t bank on an Australian “free press” foreign correspondent to look it up on an Air Pacific website. A fascist master might cancel your accreditation for far less.

    And then maybe Labor mates and QANTAS directors Schubert, Ward, and allo allo who’s that …. Cosgrove might talk the chair and CEO into disappearing the Sep 09 reports of the sale of the 46% QANTAS stake in Air Pacific? But maybe the price wasn’t right and the Fijians might have doubled it by reselling it later to the Chinese.

    And News today on Australia-China relations from Age/Business Spectator:

    quote
    As both countries look to move past strains over the jailing of an Australian Rio Tinto executive for stealing commercial secrets and bribery, lower house speaker Harry Jenkins held talks with two top Chinese leaders, The Age said.

    Mr Jenkins met and later dined with Wu Bangguo, chairman of the National People’s Congress, who is officially number two in the Chinese hierarchy.

    He and opposition upper house senator Judith Troeth also met Vice-President Xi Jinping, the expected future president.

    “They stressed how important they see the relationship with Australia not only on a bilateral basis, but for what we can achieve together in the Asia-Pacific region and around the globe. It was a very strong message,” Mr Jenkins told the paper.
    unqote

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  2. Look past the China’s trade deficit with AU and weigh it against the real heavy hitters in their deficit Japan, Taiwan, Korea, and ASEAN.

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/Trade%20Balance%20By%20Country%204.10.jpg

    You can smell the depth of the Asian bloc’s political alliance that has developed. China driving growth for its neighbours with USD reserves and on the capital side some contra trade deals with Japan already in evidence in rogue shipments.

    Not much by way of a commodities trade deficit lead overall in there is there? But consider the commodity imports for Japan, Taiwan, Korea, and ASEAN. And why not contra some from China’s mountains?

    Even if as many are claiming Mar was a one off, charged political events brought this about. Fatefull days …

    Reply

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