Two good articles on China and Australia

The FT has a good article on the Chinese banking System: it seems that the bailout of the trust product, whose potential failure concerned markets at the beginning of 2014, came from Huarong, one of the famous asset management companies created at the end of the 90ies to clean up the banks (yes, banking crisis do happen in china). One of these asset management companies, Cinda (1395:HK), IPOed at the end of 2013. Huarong is next to go public. Bailing out failed trust products – what a business model, sounds like a screaming buy!

The next article, also in the FT, is about the new 5-year low in the iron ore price. Iron ore is Australia’s main export product, as discussed recently in this post. The article quotes Rio Tinto’s CEO,  Sam Walsh:

“Now is not a time for the best iron ore producer in the world to take a step back,” Mr Walsh said. “Now is the time for others to really feel the consequences of the price against their operating costs and for them to make decisions.”

Mr. Walsh, as a low-cost producer, is quite confident that his company is better prepared to weather the storm – no doubt a heavy dose of  “Schadenfreude” is also involved.  The article goes on with BHP Billiton, the other mining behemoth:

BHP Billiton is not retreating either, confident that the long-term future of the Chinese steel industry is bright. It expects to increase output by 10 per cent to 225m tonnes in 2015 – when the second wave of new global iron ore supply will jolt the market – but acknowledges that this will keep prices modest. Chief executive Andrew Mackenzie said in August it was “quite unlikely we will see prices north of $100 a tonne and our forecasts are based on that”.

There you have it: an increase of 10% to 225m tonnes in 2015!

Mr. Walsh and his colleague at BHP Billiton certainly have reasons to be more sanguine than their high-cost competitors, such as Fortescue Metals (FMG:AU), but their forecasts still sound to optimistic to me. In other words: nothing has happened yet!


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