Daily iron ore update (buy the rumour)

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The iron ore charts for March 31, 2014 are below:

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Rebar futures were up a decent slice too. Paper markets are in a short squeeze on China’s stimulus rumours. One wonders how much the Port Hedland strike rumours are playing a role too. Probably a fair bit. From the SMH:

Tugboat workers and a North American shipping company are no closer to resolving a dispute that could halt some of Australia’s biggest mining companies from exporting iron ore.

Despite a three-hour meeting at the Fair Work Commission on Monday, the Maritime Workers Union is yet to reach a workplace deal for the deckhands that work the tugboats in Port Hedland, Western Australia.

The tugs are crucial to the operation of the port through which companies like BHP Billiton, Fortescue Metals Group and Atlas Iron ship the majority of Australia’s most lucrative export commodity.

The deckhands’ exact demands are unclear, as different claims have emerged from both sides, but ultimately the deckhands are seeking better pay and better leave entitlements to bring them in line with the engineers and masters that they work alongside on the tugs.

The deckhands are understood to earn at least $135,000 a year and work on a four-weeks-on, four-weeks-off roster, with many flying in for work from afar.

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That physical markets have joined the squeeze indicates the strength of conviction for now. But so long as steel price languish it can only go so far. And the Baltic Dry is still stuck in middling range:

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Moves such as yesterday’s in spot rarely come as one-offs, however, so you can expect this to run for a while. Texture from Reuters:

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“Traders are trying to restock steel in anticipation of consumption going up in April,” said Zhou Ting, analyst at Jinrui Futures in Shenzhen.

Steel demand in China usually strengthens in April and May along with construction activity, while investors are also anticipating the government will boost the economy following recent weak manufacturing and trade indicators.

“There’s some expectation of increased investment in infrastructure to prevent the economy from slowing further. The aim is to boost consumption in the long run, but for the economy to expand in the short term, the government needs to continue to invest,” said Ting.

Steel demand should improve but I’m not sure production will need to very much. But that’s neither here nor there today with stimulus and supply disruption in the air anything is possible. If mills restock materially it’ll be worth $20-30 to spot.

I still expect modest stimulus and tight credit but it’s possible that mills will expect a repeat of 2013 and will get more aggressive. However, given the huge port pile, I’m not sure why they would.

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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.