Here are the iron ore charts for May 6, 2014:
Physical is becalmed with the BDI capesize component up shy of 2%. Paper markets are becalmed with rebar futures flat.
We are waiting for the wind to blow either way, but it still seems likely to me to blow further into trouble. From Reuters:
“There’s a lot of iron ore cargoes being offered in the market so there’s plenty of supply. And mills are not really buying except for short-term needs given the uncertain economic situation in China,” said an iron ore trader in Shanghai.
…”I think most of the steel inventory is kept at mills rather than traders and now mills have a lot of money stuck in these products that they can’t convert to cash,” said the Shanghai-based trader.
…”I think there’s still a chance for iron ore to break $100 if the risk of more iron ore flooding the market actually happens,” said another Shanghai-based trader.
I agree. With stocks ample, an obvious glut in iron ore supply and Chinese property getting worse by the day there is no impetus to restock. The production surge of April has already killed the steel price rally so more destocking will loom.
In other news, it’s also poor. From China Mining:
The China Iron & Steel Association has created a lobbying team to urge the government to relax taxes on Chinese iron ore mine operators, an official with the group said Wednesday.
The team includes representatives from 20 major Chinese iron ore miners and steel mills including Anshan Iron & Steel, Baosteel, Wuhan Iron & Steel and Shougang Group, said the official, who spoke on condition of anonymity.
When the group first met April 24 in Beijing, members discussed the difficulties domestic iron ore miners have encountered and suggested possible plans for cutting taxes and setting up national iron ore reserves, the official said.
He said the team hopes to complete a proposal and reach an agreement with Chinese authorities by the end of the year.
Chinese iron ore miners on average face a 25% composite tax, or about Yuan 200/mt ($32/mt). Market sources said the tax rate has made it harder for them to compete in China’s iron ore market against overseas miners.
Domestic iron ore miners expect an oversupply of iron ore to intensify in the second half of the year when global iron ore miners commission expansion projects and might get more aggressive in pricing, sources said.
China’s iron ore miners have been individually lobbying the Chinese government for several years. CISA hopes the cooperation will make more progress.
This is just one way that Chinese iron ore production will remain stronger for longer than Western miners expect.
