China Restricts Some Steel Production
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China Restricts Some Steel Production

How that will weigh on iron-ore demand.

By Myra P. Saefong
Fri, Mar 19, 2021 11:36amGrey Clock 2 min

China’s efforts to drastically reduce pollution levels could lead to lower demand for iron ore, a raw material for the steel industry, which is a big source of the nation’s harmful emissions.

It hasn’t happened yet, however. “With the Chinese economy almost fully recovered from the pandemic, demand for steel is very strong,” which means that demand for iron ore is also very strong, says John Kartsonas, a managing partner at Breakwave Advisors, the advisor for the Breakwave Dry Bulk Shipping exchange-traded fund (ticker: BDRY).

At the same time, iron-ore supply remains tight, with Brazil, a major producer of the commodity, not fully recovered from a deadly accident two years ago that hurt production, he says. In 2019, Vale halted some mining operations following a fatal dam breach in Brazil, leading to significant declines in its iron-ore output. Vale pegged its production of iron-ore fines at 300.4 million metric tons in 2020, compared with nearly 384.2 million metric tons in 2018.

Tight supplies and rising demand helped lift the most-active futures contract for 62% iron-ore fines delivered to China to US$174.94 per metric ton on March 4, the highest settlement since August 2011, based on Dow Jones Market Data reports going back to October 2010. That’s not far from the record-high settlement of US$188.88 from February 2011.

China produced more than one billion metric tons of crude steel last year, and there are “no iron-ore projects that will produce sizeable net new tons for at least five years,” says Paul Bartholomew, a metals analyst at S&P Global Platts. Expectations for further Chinese economic stimulus are also positive for steel and iron-ore demand, he says.

Iron-ore prices, however, have eased in recent days on prospects of a slowdown in demand, as China plans to reduce factory activity to cut carbon emissions. The March contract was at US$168.26 on March 16, trading 2.6% lower month to date.

Tangshan, a city in China’s Hebei province referred to as the nation’s steelmaking hub, has ordered factories to limit or halt production on days when a heavy-pollution alert is in place, to cut overall emissions by 50%, according to the South China Morning Post.

“Steelmaking is a major source of pollution in China, estimated to account for about 15% of the country’s total emissions, so it is hardly surprising investors took profits at the prospect the steel industry could be facing significant environmental controls,” says Stuart Burns, editor at large for metals analysis provider MetalMiner. “The first casualty of reduced steel production would be demand for raw materials,” he says.

Still, China might not be able to fully implement restrictions on steel production. Reducing steel output may be “difficult to achieve this year,” says Bartholomew. In the past, many facilities taken offline were already “mothballed or uneconomic,” he says. “It’s harder to close production when mills are operating and making money.”

The VanEck Vectors Steel ETF (SLX), which provides exposure to companies involved in the steel sector, has climbed about 10% this month.

Given China’s restrictions on operations of some highly pollutant steel mills, however, Breakwave’s Kartsonas says he is now “a bit more cautious” on the outlook for iron-ore prices.

Brazil has signalled an increase in iron-ore production. That, in combination with China’s pollution restrictions, could lead to “more moderate” prices in the next several months, he says. Still, if demand for construction continues to support steel, that means iron-ore prices can remain “higher than historical averages for a long time.”

Reprinted by permission of Barron’s. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: March 18, 2021



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The Great Wealth Transfer: How rich millennials will invest the billions coming their way

The younger generation will bring a different mindset to how and where their newfound wealth is invested

By Bronwyn Allen
Fri, Mar 1, 2024 2 min

There is an enormous global wealth transfer in its beginning stages, whereby one of the largest generations in history – the baby boomers – will pass on their wealth to their millennial children. Knight Frank’s global research report, The Wealth Report 2024, estimates the wealth transfer set to take place over the next two decades in the United States alone will amount to US$90 trillion.

But it’s not just the size of the wealth transfer that is significant. It will also deliver billions of dollars in private capital into the hands of investors with a very different mindset.

Seismic change

Wealth managers say the young and rich have a higher social and environmental consciousness than older generations. After growing up in a world where economic inequality is rife and climate change has caused massive environmental damage, they are seeing their inherited wealth as a means of doing good.

Ben Whattam, co-founder of the Modern Affluence Exchange, describes it as a “seismic change”.

“Since World War II, Western economies have been driven by an overt focus on economic prosperity,” he says. “This has come at the expense of environmental prosperity and has arguably imposed social costs. The next generation is poised to inherit huge sums, and all the research we have commissioned confirms that they value societal and environmental wellbeing alongside economic gain and are unlikely to continue the relentless pursuit of growth at all costs.”

Investing with purpose

Mr Whattam said 66% of millennials wanted to invest with a purpose compared to 49% of Gen Xers. “Climate change is the number one concern for Gen Z and whether they’re rich or just affluent, they see it as their generational responsibility to fix what has been broken by their elders.”

Mike Pickett, director of Cazenove Capital, said millennial investors were less inclined to let a wealth manager make all the decisions.

“Overall, … there is a sense of the next generation wanting to be involved and engaged in the process of how their wealth is managed – for a firm to invest their money with them instead of for them,” he said.

Mr Pickett said another significant difference between millennials and older clients was their view on residential property investment. While property has generated immense wealth for baby boomers, particularly in Australia, younger investors did not necessarily see it as the best path.

“In particular, the low interest rate environment and impressive growth in house prices of the past 15 years is unlikely to be repeated in the next 15,” he said. “I also think there is some evidence that Gen Z may be happier to rent property or lease assets such as cars, and to adopt subscription-led lifestyles.”

Impact investing is a rising trend around the world, with more young entrepreneurs and activist investors proactively campaigning for change in the older companies they are invested in. Millennials are taking note of Gen X examples of entrepreneurs trying to force change. In 2022,  Australian billionaire tech mogul and major AGL shareholder, Mike Cannon-Brookes tried to buy the company so he could shut down its coal operations and turn it into a renewable energy giant. He described his takeover bid as “the world’s biggest decarbonisation project”.

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