From Mac Bank:
Iron ore stockpiles at smaller mills in China surged over the last two weeks, rising from 21.7 days of cover to 24.9. While inventory volumes rose 2%, the main reason for the sharp rise in inventory days was an 11% drop in implied production. It seems likely that the cause of the drop in production was enforced shut downs as part of the government’s efforts to clamp down on pollution in Beijing during the APEC summit taking place this week. According to Mysteel, shutdowns have affected 314 blast furnaces and nearly 245mtpa of steel capacity. While the impact of the shutdowns is severe, they are scheduled to stop on November 12.
As I’ve said, there’s still plenty of iron ore floating around in China if mills want to push prices lower. APEC has made this worse.
And from UBS visiting China:
Tough outlook driven by slowing economy and lack of government assistance
The feeling among the steel mills we met today was downbeat. Especially anything to do with long products. While profitability has been positive since April 2014 (the longest consecutive monthly stretch for a while), the feeling is that 2015 could well be tougher with slower GDP growth and continued over supply.Iron ore carries further downside risk. Inventory managed accordingly
The bright spot for the steel mills is iron ore which has clearly surprised this year in terms of price, with one mill saying it was expecting a $120/t average for 2014.Expectations for price are to the downside and as such steel mills have altered their strategy in terms of inventory and are now holding less than prior years given expectation that prices could well be lower in 2015. There could be some restocking pre year-end ahead of winter and cyclone season in Australia, but the feeling is that it will not be as much as prior years.
That’s your best case barring some sudden stimulus.
