Mac Bank has a nice little note today derived from an interview with a Glencore iron ore trader. He confirmed much of what we already know about steel mill weakness. Most interesting was this:
Where will prices bottom?
Thomas’s view is that we are close to a bottom now, with $95-100/t more likely this time round rather than a drop below $90/t as seen in 2012. He expects the bottom to be found in mid-late March as the seasonal return of construction activity provides some positive sequential momentum in steel demand.
Will we see a rebound in prices after the sell-off?
This year may be different to previous years, according to Thomas. One of the key differences is the volume of supply additions that means that even when purchasing activity returns to normal, there could be excess supply. Thomas sees a scenario where prices linger around $105/t for a few months but that at this level we would see reductions in supply from a third to a half of Chinese domestic supply as well as India, West Africa and South East Asia.
The trader is more upbeat about second half iron ore prices as supply in both steel and iron ore is rationalised.
That’s a very sober take and I only disagree on one point. No iron mines anywhere will close quickly and the second half will be as bad or worse than the first as the iron ore deluge flows, barring Chinese stimulus.
