Daily iron ore price update (Baltic drag)

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Here are the iron ore charts for March 26, 2014:

Iron ore prices
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rebar

Yesterday’s paper market squeeze managed a little follow through in Dalian futures but rebar futures fell a little. This looks like a very weak dead cat to me. That’s confirmed as well by the big news on the day with the Baltic Dry capesize component collapsing 7%. Whatever buying activity there was just stopped.

We turn to Reuters for texture:

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Spot iron ore rose more than 1 percent as Chinese buyers, encouraged by firmer steel prices, picked up cargoes and helped the raw material recover further from a sharp fall earlier this month.

But buyers were largely timid, traders said, with many still wary of stocking up on iron ore at a time when steel demand in the world’s largest consumer is under threat from a slowing economy.

“I see some buyers coming into the market, but there are still a lot of offers around. And the sellers don’t have too much confidence in the market because they’re quite open to negotiating prices further after they make an offer,” said an iron ore trader in Tianjin.

“We’ll probably see this rebound last only for two or three days.”

That fits the data. Also from Reuters:

Banks in Hebei have been under instruction to deny credit to projects that will add capacity in restricted industries like steel, cement and glassmaking, according to a report in China Environmental News, a publication of the country’s Ministry of Environmental Protection.

…Banking regulators have issued blacklists to lenders in the province to make sure firms that violate environmental rules are not granted credit, it said.

“The performances of these enterprises have been poor and because their ability to survive is in question, and because of severe pollution, the government doesn’t let the banks lend to them,” Zhang Wuzong, president of private steelmaker Shandong Shiheng Special Steel told Reuters earlier this month.

“These two factors mean that they will inevitably close.”

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When/if they do, expect that to precipitate further downward gapping in the iron ore price. Finally, some news from India, also from Reuters:

Iron ore production in Goa, usually India’s top exporting state of the raw ingredient for steel, should be capped at 20 million tonnes a year when an 18-month old mining ban is lifted, a court-appointed panel said, less than half peak output and curbing potential shipments to key buyer China.

…A Sesa Sterlite official, who did not want to be identified, said the production cap was likely to be temporary as the panel had not had adequate time to study mining’s impact on the state.

“Till the scientific study by this committee is completed, which may take about 12 months more, the mining activity as directed by the court will be strictly monitored and regulated” the panel said.

Most Goan iron ore is exported so this will still add to global supply.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.