OMG - before you read this let me warn that what I read and reproducing is not written by me but collected information from advertisement of Motley Fool magazine . So do not shoot me. However if it is true then I will be utterly trouble like millions of Australians and business houses. So please DYOR. Regarding copy right - this information collected from public domain and no where copyright was mentioned in the body of advertisement.
Courtesy to Motley Fool :
The scale of China's construction boom is off the charts. The country used more cement between 2011 and 2013 than the U.S. did during the entire 20th century, and its voracious hunger for Aussie iron has rained cash on our country.
China devours two thirds of the world's seaborn iron ore. So goes its appetite, so goes the price of iron ore.
You can't get a read on how China is faring by focusing on government-published numbers, though. It's the worst-kept secret in finance that no one trusts those numbers.
Instead, you’ve got to do your own homework, get on the ground, and find independent sources to get a directional health of the economy's health. For example, inventories and accounts receivable are growing faster than sales at the Chinese consumer companies we're following -- a classic red flag of low-quality growth.
And then there's construction, which matters most to Australians. Once again, independent sources paint a darker tale. Chinese steel demand fell 3.4% in 2014, per the China Iron & Steel Association -- the first drop in 14 years. Also, Caterpillar expects the Chinese market to shrink in 2015. Neither surprises us given the vast multitude of idle projects (and Cats) that we spotted.
With this much idle machinery, it's no surprise that Caterpillar sees Chinese construction shrinking in 2015.
China has overbuilt.
Unconfirmed report says 28% of the homes in Beijing had not used electricity for six months. In New York, he reckons that number might be more like 4%. Meanwhile, researchers at China's South-western University of Finance and Economics found that 49 million (22%) of Chinese apartments sold in 2013 were vacant.
In theory, those homes will fill up as Chinese move from the country to the city. In reality, there are enough empty apartments in China to house 6 years' worth of urban migration. That's more than an entire year's worth of global iron ore demand going up in smoke.
Combine that lost confidence with the lack of long-term financing for projects in China (typical of most emerging economies) and it’s easy to see how the wheels of construction can so quickly grind to a halt.
All that’s troubling enough as is, but iron ore supply is also growing.
UBS forecasts that iron ore’s oversupply will 6X from 35 million this year to more than 200 million by 2018. The major miners are fixated on gaining market share, and they will, but at the expense of crushing the iron ore price for years to come.
Some analysts think higher-cost supply will come offline in response to lower prices. Again, in theory, that's true. In reality, miners have many motivations -- faith, hedges, survival, and politics -- that will inspire them to keep producing at a loss, ruining the party for everyone. And, speaking of oversupply now is a good time to zoom out and recall that the iron ore price has spent most of the past 15 years at much lower prices than today:
Growing supply and falling demand is a bad combination.
Even Rio and BHP will find this price environment a bumpy road . And mining services companies? They’re not only in the same boat -- they’re tied to the anchor.
Navigating Tough Times
A major slowdown in mining will have knock-on effects for the rest of the Australian economy. Higher unemployment, lower capital expenditures, and more sour loans are all on the cards
(will reproduce in iron ore thread)