China Restricts Some Steel Production

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.”

Superannuation is the first thought when it comes to self-funding retirement. Yet it is hardly the only option for doing so.

Just as we have a choice in how and where we work to earn a living, many people also have a choice in how to fund their retirement.

It is possible and sometimes preferable to leave your superannuation untouched, allowing it to continue growing. Some or all of your income can come from alternative sources instead.

Here are some alternatives you can consider.

1. Downsize your home

For many who own their own homes, the equity accrued over decades can eclipse the funds in superannuation. However, it’s theoretical money only until it is unlocked.

Selling up the family home and downsizing – or rightsizing – for retirement allows you to pocket those gains tax-free and simultaneously relocate to a more suitable home with lower upkeep costs.

Up to $300,000 from the proceeds can be contributed by a downsizer to boost your super, and the remainder can be used to fund living expenses or actively invested.

Remember that while the sale proceeds of your home are tax-free, any future profits or interest earned from that money will be taxable.

2. Part-time work

Semi-retirement allows you to gradually step into retirement. You continue earning income and super while working part-time, keeping a foot in the workforce while testing the waters of your new found free time.

Doing so also offers scope to move into different roles, such as passing on your skills to future generations by teaching/training others in your field of expertise, or taking employment in a new area that interests you and is closer to home.

3. Self-employment

Retirement from a full-time position presents a good opportunity to pursue self-employment. With more time and fewer commitments on your hands, you have greater scope to turn your hobby into a business or leverage your professional skills and reputation as an external consultant.

Also, for the self-employed and those with a family business, director’s loan repayments from the company are typically tax-free, offering a potentially lucrative source of

income and a means of extracting previous investments into the business without selling your ownership stake.

4. Investments

Rental property income (from residential or commercial properties) can supplement or even provide a generous source of income. The same applies to dividends from shares.

These are likely to be more profitable if you own them well before retirement.

Income that is surplus to your everyday needs can be reinvested using tax-effective strategies to grow your future returns.

5. Family trust

A family trust could be used to house investments for yourself and other relatives, building intergenerational wealth.

Trusts allow funds to be allocated to beneficiaries to manage marginal tax rates and stretch the money further, you have control over how income is split between different family members and have flexibility for changing circumstances.

6. Selling collectables

You may not realise the value of items you have collected over the years, such as wine, artwork, jewellery, vintage cars, and antiques.

Rather than have them collect dust or pay to store them, they could be sold to fund your living costs or new investments.

Where possible, avoid selling growth assets in a depressed market – wait until you can extract maximum value.

7. Obtaining a part-pension

Part-pensions are not only possible but valuable in making your superannuation stretch further. They still entitle you to a concession card with benefits in healthcare, transport, and more.

Take these savings even further by requesting pensioner discounts with other companies, on everything from utilities to travel and insurance to eating out.

Also, don’t overestimate the value of your assets as part of the means test. It’s a common mistake that can wrongly deny you a full or part-pension.

Plan ahead

However, you ultimately fund your retirement, planning is crucial. Advice would hopefully pay for itself.

Understand your spending and how those habits will change before and during retirement, then look to investments that offer the best fit.

Consider a mixture of strategies to diversify your risk, manage your tax liabilities and ensure ongoing income.

Above all, timing is key. The further ahead you plan, the more time you have to embrace additional opportunities and do things at the right time to maximise their value. You’ve worked hard and now is your chance to enjoy the fruits of your labour!

Helen Baker is a licensed Australian financial adviser and author of the new book, Money For Life: How to build financial security from firm foundations (Major Street Publishing $32.99). Find out more at www.onyourowntwofeet.com.au