Daily iron ore price update (down, down, down)

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Here are the iron ore charts for April 21, 2014:

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The top is in. Paper markets have rolled. Rebar futures are almost back to recent lows. Physical is closely following. The Baltic Dry capesize component fell another 5% over the long weekend and rebar average has peaked.

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Port stocks appear to have topped too but my guess is that’s happening simply because storage is full. That’s raises the prospect of more pressure on spot because financing deals will be more difficult and expensive to execute.

Reuters has texture:

“Demand will be picking up gradually in May, but high output and inventories will certainly pressure prices, and the outlook is not quite rosy for the rest of this year,” said a steel trader in China’s eastern Anhui province.

Daily crude steel output in China jumped nearly 4 percent to 2.152 million tonnes in the first 10 days of April from late April, putting annualised production at about 786 million tonnes, up from last year’s 779 million tonnes.

…Jiangsu Shagang Group, China’s biggest private steelmaker, will cut prices of rebar and wire rod, mainly for construction use, by 50 yuan a tonne for late April bookings, traders said.

Earlier this month, industry pricing leader Baoshan Iron and Steel said it would slash its prices for May after keeping them flat in April, moving to spur demand in what in past years has been a brisk consumption month for steel.

The weaker steel prices are likely to curb steelmakers’ interest in stocking up on iron ore.

“May and June are likely to be challenging months for iron ore and we expect prices to fall to around $105,” Citigroup analyst Ivan Szpakowski said in a note…Moreover, while we believe that Chinese demand has reached a near-term cyclical bottom, positive demand seasonality will fade with the onset of summer and we do not expect monetary policy easing and fiscal stimulus to have a material impact until the second half of the year,” Szpakowski said.

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In short, a brief steel price spike has been enough for mills to fire up production and kill the recovery. Raw material destocking becomes a material risk in these circumstances.

Meanwhile, in more bad news, India’s Supreme Court has finally lifted the Goan iron ore ban. From the FT:

The apex court has ruled that miners can restart operations in the small coastal state, which typically contributes more than half the country’s iron ore exports, after renewing licences with the state government.

Industry analysts warn that, though the move is undoubtedly positive for the sector, it will be months before production resumes.

“There will be no more limbo but it will take some time for the local authorities to be clear about what would be the total output for each and every mine, so it will take three to six months to clear everything,” says Tarang Bhanushali, metals and mining analyst at brokerage India Infoline.

The Supreme Court initially introduced the ban following concerns over illegal extraction in the region, which was eroding the state finances and natural resources, as well as causing pollution. While opening up the sector on Monday, the Supreme Court introduced a 20m-tonne cap on total production in the state.

“What we believe is that the upper limit has been kept so the mines can be operational for the next 20 to 25 years and not less than that,” Bhanushali adds.

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Nearly all Goan iron ore is exported so that means most supply side models are going to be about right or short of probable India supply in the year ahead, which will now approach 30 million tonnes or so.

Long and short term, all of the risks for the iron ore price are down today.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.