Daily iron ore price update (steel cuts)

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Find below the iron ore charts for February 28, 2014:

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What can I say? More of the same with the paper markets bounce quite unconvincing, rebar still falling, some spot firmness but a huge question over who is buying as port stocks rise another 2.7 million tonnes for the week and head for the outer solar system.

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There was also poor data from CISA Friday as its high frequency steel reporting data fell unseasonably. Via Platts:

China’s crude steel output during the February 11-20 period retreated to 1.966 million metric tons/day, down 5% from the 2.066 million mt/d average in the first ten days of February, according to a China Iron & Steel Association (CISA) estimate based on its member mills’ crude output during the ten days. CISA’s 86 members reported output of 1.689 million mt/d over mid-February, down 4% from their 1.761 million mt/d average early in the month.

To give you an idea of how unusual this is, I’ve marked up (in red) an older Credit Suisse chart:

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Mac Bank has pointed out that the CISA data tends to underestimate production in the first few mnoths of the year but, even so, this is a clear break with tradition and, what’s more, makes sense given the rampant weakness in steel prices and very high mill inventories; a rational response would dictate cutting production.

We turn to Reuters for some texture:

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High stockpiles of steel products in China show that demand has not recovered, said Zhou Ting, analyst at Jinrui Futures in Shenzhen, adding he expects rebar to stay near 3,300 yuan.

“The economy is undergoing a very tough period because the structural reforms will take their toll. I don’t expect construction activity to increase as much as it did in past years,” he said.

…”The market was supported by the booking of several cargoes for mid-March delivery, indicating buy interest is slowly returning,” Australia and New Zealand Banking Group said in a note.

Still, some traders were unsure whether the recent downturn in prices has ended.

“The market is hoping that there will be some kind of economic stimulus from the government next week. If steel prices don’t recover strongly, iron ore can still go lower,” said a Shanghai-based iron ore trader.

“We don’t want to buy any cargoes right now. We’re just keeping our hands clean. We’d rather wait and take action later.”

Offers for imported cargoes stockpiled at Chinese ports have continued to drop, suggesting lack of buying interest.

“Nobody’s interested in port stocks because you need to pay cash for those. Cash is very tight at the moment,” said another Shanghai trader.

I doubt stimulus is coming yet. The PBOC looks very determined to maintain its squeeze and the pain is not extreme enough for fiscal intervention. If that penny drops so will iron ore prices as traders (or their banks) dump stock.

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.