IRON MINING. THE NEXT BUBBLE TO EXPLODE?. DEFLATION THE LESSER EVIL

The Steel Industry Value Chain is completely inverted. Real steel consumption, both by private and public sectors is depressed. Europe is entering a new economic recession period and USA is substaining  the economy feeding their huge deficit, meantime China has severe inflation problems that will finally affect their economy.

The World Steel Industry continues with capacity expansions, producing more and more the steel that is not needed in the market. All major steel companies had, consequently, made losses in Q4-2011.

The Steel production increase demands more raw materials, basically coking coal and iron ore. Mining and Trading sector, very much concentrated in few actors, is close to the competitive advantage of being the unique, giving them the capacity to keep prices high. The Mining and Trading is making big profits in bad economic times. 

Is this model substainable?. The answer is clear: NO.

When we see that some steel companies are targetting to enter into the mining business, we conclude that the iron ore mining will be the next bubble to explode.

The solution to the economic crisis that we are suffering since 2008 will not be bigger lobbbies or/and vertical integration of activities, it will come from the application of measures to deflact the world economy. A situation of european economies in stagnant recession, USA leading the public deficit and China growing at 8% will end up bad for all.