China's peak steel
By Justin Pyvis – Delivered on 26 Aug 2021
Good morning! Queensland's hotel quarantine system is so "overwhelmed by new arrivals relocating to escape interstate lockdowns", that the government paused all arrivals from NSW, VIC and the ACT for two weeks. Yet they somehow still had room at the Sanctuary Cove InterContinental for the South African and Argentinian rugby squads, due to arrive tomorrow, which probably total around 100 people. 🤔🤑

Moving south, NSW is now precariously close to the dreaded four-figure mark, recording 919 new cases yesterday. Contact tracers appear to have given up all hope of reigning this one in, with chief health officer Kerry Chant asking people without symptoms not to "use those scarce testing resources because we need to get the turnaround times for tests down as soon as possible." Eeeesh.

Down in Victoria authorities took a breather as the number of new cases dropped to 45, although only 17 of those were in quarantine while infectious.

Finally, Western Australia looks set to go it alone with a zero-COVID strategy. Health Minister Roger Cook said Premier Mark McGowan will raise his concerns about the reopening plan at National Cabinet on Friday, as "we prefer not to have COVID... I think there's been some gaming of the Doherty recommendations to fit a political agenda".

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Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

The US S&P500 rose 0.22% overnight to reset its record high, the 51st of the year. Markets shrugged off a 0.1% fall in orders for durable goods in July as the data were skewed by a decline in new airplanes, which if excluded would have seen growth of 0.7%.

Locally, the ASX200 (+0.39%) improved for a third straight day led by the big iron ore miners, who gained despite a slight decline in futures prices (still playing catch-up from Tuesday). A big loser was Nine Entertainment, which plunged 9.1% despite a 43% rise in earnings "with investors spooked by forecasts for higher costs in its television division and for sport on its streaming service Stan".
Recession warning: Total construction work done in Australia during the June quarter increased just 0.8%, a disappointing result driven by a -0.1% dip in residential construction. Market forecasters were predicting a 2.5% increase. Not looking good for the June quarter GDP figures (to be released next week).

Competition stings: Buy now, pay later firm Zip Co reported a loss of more than half a billion dollars last financial year, reflecting "heavy investment in marketing and global expansion". The story was similar for Afterpay, whose "marketing and staff expenses surged over the year and losses from bad debts were higher as it took on new and riskier customers as it expands globally".

Picking winners and losers: In the name of "common prosperity", China's central bank will prevent "the disorderly expansion of capital", and will "encourage financial institutions to strengthen support in key areas and weak links of the economy, such as agriculture, manufacturing and green development".
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China's peak steel
Feature image Has steel production in China peaked? Perhaps. World Steel Association
Data from the World Steel Association showed that China's monthly crude steel production fell for the second straight month in July, and was 8.4% lower than this time last year.

Why this matters: To say Chinese steel is important for Australia is an understatement. A key steel ingredient is iron ore (around 1.6 tonnes are needed per tonne of steel), which as of June 2021 represented 42.5% of Australia's total merchandise exports. Three of Australia's largest companies – BHP, Rio Tinto and Fortescue – are heavily reliant on the iron ore trade. Australian iron ore is also taxed at multiple levels of government (e.g. royalties, corporate tax) before mostly (~85%) finding its way to China.

Breaking it down: While China's steel output fell by 12.8% between May and July, global steel production was still up 3.3% on July last year (when the iron ore price was $US50 lower than today) thanks to a 21.2% increase in production outside of China.

Looking forward: It's no secret that China is slowing down. China's government also has a large influence on how and what is produced, and it recently unveiled a goal to keep steel production flat on an annual basis – a target it's currently running about 8% ahead of. Finally, the Politburo wants to put on a show at the Beijing winter Olympics in February 2022. How do they do that? By keeping the skies clear, which means capping steel output and "ordering other measures to slash pollution".

APEC blue skies Yes, this is the same place. HuffPost
Put it all together and China's monthly steel production this year likely peaked back in May, which means barring another supply shock (e.g. Brazilian dam collapse) or panic stimulus, the iron ore price has probably also peaked.
The Wrap Up
  • 🥝 The Kiwi COVID-19 outbreak worsened yesterday, with another 62 new cases reported. This is now the largest cluster New Zealand has seen since the beginning of the pandemic.
  • 🏟️ The AFL will host the grand final in Perth if the MCG cannot hold the event in front of crowds.
  • 🥇 Australia picked up four golds in the pool and two in track cycling to sit atop the Paralympic medal tally after the first day.
  • 📺 Billionaire Kerry Stokes will step down as executive chairman of Seven Group Holdings but will remain chairman of Seven West Media.
  • 🏉 Former Hawthorn head coach Alastair Clarkson will take a year off despite advances from Carlton and Collingwood.
  • 💉 Victoria will vaccinate all year 12 students against COVID-19 prior to their final exams in October.
  • 🤔 Pornography website OnlyFans will no longer ban porn "after fierce backlash from its users".
  • 🍜 "SOUPS FOR SHOTS". A Washington State prison is offering inmates 10 packs of ramen noodles if they get vaccinated against COVID-19
  • 🎢 Do-Dodonpa, Japan's world-fastest rollercoaster which can reach speeds of 172kmph in 1.8 seconds, is shutting down "after several riders shattered bones".
  • 👶 The naked baby on the cover of Nirvana's 1991 album "Nevermind" is suing Kurt Cobain's estate and the band's surviving members saying they "violated federal child pornography statutes and sexually exploited him".
  • 🚢 The Meishan terminal at the world's third busiest container port, Ningbo-Zhoushan in eastern China, is back up and running. However, it could be months before it returns to normal.
  • 🍁 Justin Trudeau said he will ban foreigners from buying property in Canada for at least two years if he's re-elected.
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