Daily iron ore price update (relief)

Find below the iron ore price table for January 22, 2014:

table

The charts:

dalian
dfvgsd
sfds

Rebar futures also lifted a little.

Not terribly convincing as reversal but better than another fall!

Macquarie yesterday confirmed my recent ruminations of tentative Chinese destocking:

The latest Mysteel survey of iron ore inventory at Chinese steel mills shows an unseasonal destock over the past fortnight, to 28.1 days of use from 29.7 on the 3rd of January. This was accompanied by an $8/t drop in the spot iron ore price over the same time frame. In our opinion, this highlights the impact of the prevailing tight credit environment in China, which has left both steel traders and steel mills both unable and unwilling to build inventories. Should end demand remain strong, something recent property data (including a 35% YoY rise in new starts in December) suggests, this could lead to a strong steel demand push and price rises post Chinese New Year with inventory levels low. However, tighter credit also brings increased risk of weaker end demand into mid-year.

Property is a big component of demand and as I said in my 2014 forecast, we can expect support there. Here’s Phat Dragon’s breakout of fixed asset investment growth by sector:

fai

Note the consistency of the real estate share but its not enough to offset the fading bounce in the 2013 infrastructure proportion. Without stimulus, iron ore will fall heavily.

 

David Llewellyn-Smith
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Comments

  1. Property is the largest demand component and also the biggest downside risk to iron ore outlook.

    The latest set of NBS data on property was widely reported as “prices still rising” however the detail is concerning. Looked at in real terms the number of cities from this sample with falling prices is now well over twenty. These are mostly Tier 3/4 cities and the problem is not government cooling measures, but that past years’ construction boom has created an oversupply. Another massive wave of new completions will hit early this year. Until recently much oversupply has been absorbed by investors but developers are having trouble shifting this inventory. With price momentum broken,investors won’t go near it.

    Tier 1 cities are a different story entirely, underlying demand remains strong, and probably always will, even if there are still many empty apartments kept only for investment. But they aren’t a great opportunity for development either, because land supply is tightly restricted and very expensive.

    There remains a tail risk that price falls in smaller markets infect larger markets, the Chinese fall out of love with housing as an investment and the whole thing comes crashing down, however don’t think you need to contemplate anything that dramatic to imagine steel demand from this sector may have peaked.

    http://twitter.com/BlandDexter

    45% of China’s housing demand is for investment:

    https://pbs.twimg.com/media/Bei0YZNCcAAiRqh.png

  2. More credit expansion to support Chinese housing growth is just kicking the can down the road and making the eventual adjustment even more difficult.

    Will it come sooner (i.e. through the Chinese government getting behind real re balancing) or later in the form of an financial-economic implosion… These are the big questions….