Find below the iron ore price complex table for February 8, 2013:
And the chart:
Chinese bulk shipping rates have rolled over for Chinese New Year even if the miracle commodity has not:
My spread charts continue to howl of a market where fundamentals do not match current prices. Spot to swap ratios are still stretched:
And spot to rebar is now at wides unseen since the heady days of early 2010:
The rebar spot price hasn’t risen since the new year:
But rebar futures have been on a tear. Here is the January 2014 contract for instance:
If I plug the 12 month rebar future price into the spread chart it comes back to more recognisable levels:
So we have two pricing scenarios here. The more liquid rebar futures market is driving prices on an expected Chinese recovery. The iron ore sport price is going with it and is anticipating a return to the heady supply shortage days of 2010/11.
However, fundamental steel demand at this moment continues to struggle. As well as soft rebar spot prices, inventories are going through their seasonal early year surge but so far much lower than previous years:
Also, iron ore’s twin, coking coal, has only managed to put a few bucks despite Queensland’s nasty weather. The coking coal market is clearly weak:
So, we can mount market-priced cases for enduring strength in the iron ore price or for a sudden and quite serious fall.
My own view remains that the latter is more likely, especially as the year gets older. I expect Chinese growth to plateau in the first half and the supply deluge to build all year.
As forecast some weeks ago, profit estimates for the iron ore miners will be rising in the forthcoming earnings season. I would not be at all surprised to see the big boys beat on current earnings as well. Share prices have been and may continue to rally, especially if the broader market continues to twirl upwards towards freedom. The ASX Materials Index is poised to breakout to its highest level in almost a year:
I suspect this call is premature but if Materials can rise into second half 2011 ranges, there is nothing wrong with shorting select miners for the medium-term minded.
