The iron ore futures markets are showing every sign that they are in the early stages of bursting bubbles. Volume has crashed and now prices are following:
It is noteworthy that not once in nearly a year have either major global iron ore futures markets priced the future of Australian dirt above this week’s Budget outlook price of $55 FOB. In fact, even the recent bubble, which has been widely celebrated as the bottom of the mining bear market has failed, even at its most overheated, to reach the Budget outlook price of $55. Today the Singapore 12 month swap is pricing $37.47 and the Dalian six month futures is pricing $44.49.
Worse, it appears the bubbles in both indexes are now bursting as Chinese authorities crimp speculators. I do not expect a full retracement in prices until year end given there is some real new demand in the Chinese stimulus. But, as Chinese steel mill output surges into the price rises, steel prices are probably going to keep falling over the next eight weeks. Iron ore is going to follow as volumes are surging worldwide including in China, from Steel First:
China’s National Bureau of Statistics have released data showing the country’s run-of-mine (ROM) iron ore output arrived at 98.2 million tonnes in March. Volumes totalled 261.6 million tonnes in the first quarter, down 5.3% on the year.The price rebound has led some domestic miners to restart operations its been reported. March’s ROM output equates to a production rate of 3.2 million tonnes per day, almost 19% higher than 2.7 million tonnes per day in the first two months of 2016, according to Steel First calculations.
The ferrous complex is shaping for falls right into the election. Indeed last night the CFR iron ore price fell through the Budget’s forecast price, now below it by 50 cents at $59.50 (remember that’s +$5 freight on top of FOB) and I would not be at all surprised to see iron ore trading 20-30% below the Budget outlook price by the time we reach the election, razing the Coalition’s ludicrous Budget.
An iron anvil is poised above Turnbull’s head and it is not the self-appointed crown of the Mad King.