Here are the iron ore charts for May 29, 2014:
Paper markets continue to plumb new depths with the 12 month swap at $95. But, let’s face it, it’s still too bullish. By this time next year, iron ore will be at $80 barring some complete policy reversal in China. Shouldn’t it be pricing that outcome already and, if so, could it go there now? Dalian is also on the verge of a new low.
Physical is tracking the derivatives lower. The Baltic Dry capesize retraced another 2%. Rebar average continues its little bounce.
We are now clearly in the middle of an iron ore price shock that will run right through the second half of the year as quarterly contract prices catch up. My guess is roughly half to two thirds of ore is still shipped on contract. Here’s the quarterly average prices since the 2011 peak:
The last quarter average will probably fall further yet since it’s got June to come. The falls are now as large as the 2o12 shock. Volumes will ease but not cure the pain.
