An iron ore squeeze

It’s an eye-popping iron ore table today:

So, the exuberance of last week finally seized parts of the steel complex with 12 month swaps hitting the proverbial afterburners. Up 9.1% on the day! And who said there’s no speculation in the iron ore markets? Spot followed with a solid climb:

Needless to say, with the arse falling out of the Chinese steel market on the same day, what we have here looks like your proverbial squeeze:

What do we make of this? I guess, as I argued Friday, there are enough reasons now to put a bid into the swaps market: European market stabilisation and increasing Chinese stimulus efforts. Will it last? That will depend entirely upon the fundamentals. The squeeze could run for a while and if we get a hint of a turn in real demand markets will hold the gains. If end-user demand doesn’t come then the rally will fizzle. With China replenishing its infrastructure  pipeline this could be the bottom. That’s probably the best bet.

But, as Phat Dragon surmised last week, a Q4 recovery in China is at risk from the global swoon. In that event this is a dead cat bounce.

My guess is the bottoming process has begun and will probably require a retest.

David Llewellyn-Smith
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  1. “That will depend entirely upon the fundamentals”…that’s a throw-away line which is not technically correct.
    If the iron ore swaps market has bottomed it’s because technical traders- driven by short term speculative gains / minimisation of losses- remain in control.
    It is far too early to contend that those with a fundamental orientation have entered the market long …imho.