Find below the iron ore price for August 12, 2013 (remember this is the last three days of trade:
Oh yeh! And to the charts, spot has completed a gigantic head and shoulders bottom:
The rally is not to be trusted until swaps break out as well but they’re close! Supporting the bounce is rebar:
But as you can see it’s still very low, albeit rising strongly. This has left our spread charts wide and getting wider. For spot/swap:
And spot to rebar silly and getting sillier:
So what’s going on? As I warned last week, when iron ore runs, get out of the way. A few possible scenarios:
- traders are pushing the market on better Chinese data
- mills have been caught off guard by better conditions arising from realty demand
- mills are restocking in anticipation of better demand from targeted stimulus
- all three
If it’s the latter then it’s only just begun. I find it hard to believe that Chinese mills will repeat the mistake that they made late last year with over-stocking and over-production but who knows? Stranger things have happened.
If we enter a restock now on some genuine bounce in Chinese demand then Holy Cow Batman! Rebar has oodles of space to run. And mills are still low on iron ore inventory leaving probably a month of price rises ahead!
My view? We’re going to run further but not too far. The stimulus offered to date is small. The real estate bounce will also fade as prices and purchases are already being reined in. Chinese credit statistics are worryingly tight. Mills do have plenty of reasons to wait this out.
How high? $150 maybe. But if I’m wrong (again) and demand is stronger than statistics currently suggest, then we’re going straight through the roof.
Fiscal stabilisation mechanism anyone?
