Find below the iron ore price table for September 25, 2013:
Spot continues to defy me and the rebar sell-off, which now has the price of steel looking chronically weak:
I won’t say I’m at a loss but I can’t say it makes much sense either. Steel mills are clearly determined to produce regardless of profits!
Anyway, the longer the price does not correct, the greater the chance it will miss the traditional seasonal weakness. If we get through another month I’d say it’s off.
A debate is brewing over whether or not that will mean a big restock at the end of the year. From the FT:
Citi estimates fourth-quarter production from the big three Australia producers – BHP Billiton, Fortescue Metals Group and Rio Tinto – will be 34m tonnes higher than the same period a year ago as expansion projects come on line.
“The inventory cycle in China is turning, there’s also seasonality and a big dose of supply coming. All of that will probably push down the iron ore price,” says Ric Deverell, global head of commodities Credit Suisse.
Further pressure on the iron price could come from a reduction in iron inventories by Chinese steel mills and India, where an easing of mining and export bans could lead to additional supplies.
“The decline in Indian iron ore exports has been an under-appreciated factor in maintaining iron ore prices over the past three years,” Citi said in a report circulated this week. Two years ago India was exporting 100m tonnes a year of iron ore.
But with demand in China, the world’s biggest steel producer, still strong, other commentators argue concerns about a ‘wall of supply’ are overplayed. Macquarie Securities believes the iron ore price could reach $150-$160 in the fourth quarter on the back of weather-related restocking by Chinese steel mills and pro-growth comments from the country’s leaders.
The wall of supply is not overblown. It’s real. And China will not grow output next year like it did this. But ore inventories are still lowish and there is every chance that a restock will take place in Dec/Jan, especially if the plenary is positive about investment. I side with Macquarie at this stage but still expect prices to correct throughout 2014.
