Chinese iron ore production sees a decline but not enough

As the year is coming to a close it will certainly go down as a bad one for commodities that have seen a drastic drop in prices that began late last year but accelerated its momentum to the downside as further evidence shows that authorities in China have yet to successfully see any basing of its economy, sending shiver down spines of the entire global investor community who had hope to see better results by now.

One industry that has led the rout from the front is iron ore with major players in the sector having their domineering production and supply being interrupted from the likes of the Chinese themselves who decided to decrease their reliance on seaborne imports of steel and opting to produce it from their own out of date steel mills even though the costs of such would be fractionally smaller than that of global market prices.

But as the premium of global market prices to Chinese prices turned quickly into a discount the need to close down these mills prompted BHP Billiton, Rio Tinto and Vale SA to hone in on the lower cost steel mills in their own portfolios of mines and produce a larger supply than necessary in an effort to price out their Chinese counterparts.

However the battle has become that of the Chinese government who tries in vanity to subsidise their producers with big mining houses using their ability to lower margins to extremes but at the expense of chewing into huge chunks of long term shareholder value much to the dissatisfaction of many resulting in capital flight from the sector.

I doubt whether this trend will persist further as China has set about on radically changing strategic economic priorities with consumer demand forming the central point from which authorities base their policies shifting away from what we've seen the last two decades or so where a ramp up in investment spending contributed the most to the uprise of the Chinese economy.  

This fact sways my belief that government subsidies would no longer be a priority and with China accounting for 50% of the world production we should begin to see a decline in the quantity of steel being produced. We aren't however seeing that at the moment with small incremental decreases in cuts taking place becoming a frustration to mining houses around the world. We need to start seeing a meaningful drop off in the quantities being produced and brought to market to feel certain that the normalisation process has begun.

China's steel output drops again with more cuts on the way https://t.co/jNWIycqiGa via @business

— Jasmine Ng (@jasminengzt) December 14, 2015

A ray of hope for the African continent that has seen sentiment towards investment opportunities fall out of favour in the last few months as focus turns on rising interest rates in the US and the level of increasing risk pushes participants to safety.

However Angola looks set to start operating its official stock market in January 2016 as it marches forward with political reforms that have seen major inroads made in the investability of the former colony of Portugal after years of civil war.

It would be safe to assume that the delays in starting operations have been largely due to the slump in commodities and with Angola being a big oil exporter, their trade balance has seen it fall on harder economic times. The stock exchange will initially trade in public and corporate debt which I think is crucial in building trust between Angolan government, business and international lenders.  

Angola Stock Market Expected to Start in January, Lawyer Say https://t.co/M2vRdWfBWI

— Bloomberg Africa (@BBGAfrica) December 14, 2015