China has been stockpiling storable commodities for the last year. At first I thought it was just frontrunning a depreciating yuan by turning assets/reserves into something more tangible.
But in this piece we see there may be a more ominous explanation: stockpiling ahead of war.
From The Telegraph, September 18:
The Port Talbot solution won't cut it when you’re building Industrial Society 1.0
When will China be ready to invade Taiwan? Perhaps never. But Xi Jinping is talking a lot about war, and a huge military and naval buildup is underway. It’s definitely something to think about.
One limitation on Xi is that an attack across the Taiwan Strait might well be seen by China itself as bringing a recalcitrant province to heel, but in the Western world it would be seen rather differently. It is likely that at least some supplies of raw materials into the Chinese economy would be cut off if it does happen.
Possibly the most vital of these would be the iron ore with which China is building itself. Constructing version 1.0 of a modern society requires vast amounts of iron and steel. Our own situation, where building something new usually means tearing down something else first, produces a lot of steel scrap. This is why the recent Tata and Port Talbot issue in Wales is being resolved with £500 million to build scrap reprocessing furnaces, rather than ones to make new steel. This is why Nucor, American’s largest steel company, is mainly engaged in reprocessing the scrap from taking down the last version of society to make the next. In the West we mostly do not need to make new, we can be green and reprocess old. But building for the first time, as China very often is, cannot be done that way.
Therefore China is reliant upon imports of iron ore: that’s the only way it can continue to develop. The imports come mainly from Australia, and a war over Taiwan would interdict that. Currently there are, quite literally, mountains of iron oxide in the Pilbara and other parts of Western Australia that get shipped off to make China’s new cities. The likelihood is that would stop upon hostilities. So, China will probably only feel free to initiate those hostilities when it can replace those supplies.
Sadly iron ore is not just iron ore – nothing in mining is ever quite that simple. There’s plenty of magnetite around – China mines tens of millions of tonnes a year of it at home. The trouble with magnetite is that it requires considerable processing from rock to furnace, and there isn’t enough to meet China’s requirements. There’s another type of ore, a step further back, called taconite which is also common – iron itself is very common of course. But what people actually want is hematite (or haematite) which is also known as direct shipping ore, DSO. It’s not quite true, but almost, that mining this stuff is as simple as scooping it into a railroad car and sending it off. This is also what’s available in the hundreds of millions of tonnes quantities necessary to build that new China.
Well, it’s currently available as long as those Australian mines keep shipping. Even in Australia there’s not quite enough: one Chinese company also mines magnetite in that country.
So, if China invades Taiwan it’ll lose – at least for a time, until bruised egos give way to money again – access to those Australian iron ores. But if iron’s that common around the world then possibly it can be purchased from elsewhere? There is substantial mining of hematite in Brazil but simply not enough to feed those furnaces. Nor is it feasible to ramp up supplies from there.
But there is one other source. The last – last known at least – vast hematite deposit is in Guinea in West Africa. This is like those vast Australian deposits. Shovel the mountains into the rail cars and ship them off. It’s large enough to keep China going for a time, too. The Chinese government has insisted that it wants to reduce dependence upon the Land of Kangaroos. The Chinese government has encouraged investment in that iron ore project in Guinea....
....MUCH MORE
