Find below the iron ore price table for June 4, 2013:
Obviously a very sharp bottom confirmed yesterday. I’ll stick with my call that it’s a dead cat for now, though as we know they can levitate for a while. From the AFR today come comments from the chairman of Baosteel, Xu Lejiang confirming the changes in the market:
“Steel production is much higher than demand in China…Iron ore production will also be way higher than demand shortly…The central government is focusing on economic transformation,” Mr Xu said. “People are starting to realise there won’t be another 4 trillion yuan [$645 billion] stimulus package…In the last 12 years there was a big miss-match between iron ore production growth and steel production growth, but it will be the opposite in the future.”
Pretty much spot on. The same story quotes Macquarie’s Graeme Train who reckons the destocking will run for two more months and take the price below $100.
The the real import of the Baosteel chief’s statement is that Chinese mills recognise the structural shift taking place in the iron ore market. There will be no further rounds of stimulus inflating demand (and realty will yet be reigned in as well). There will be no more ore shortage either. Hence the motivation for hoarding the miracle commodity, for need and profit, has passed. The future will be lean inventory management like any other sector.
As such, iron ore analysts should also forget about any rebound in China’s iron ore port stocks and expect future restock cycles to be more shallow than in the past. The same is true for any price rebounds. All things being equal, by mid next year I still expect iron ore will trade reliably between $80 and $90.
