Here are the iron ore charts for June 4, 2014:
Buyers emerge! Once again, the long-dated contango has proved its worth as signal for a turn in the cycle. Paper market were firm and rebar futures managed a small bounce. Physical is the same with the Baltic Dry capesize adding another 4%.
However, this is not the beginning of a big restock in my view. Chinese property is still deteriorating, not enough stimulus is yet in the pipeline to stop it and although the steel inventory cycle has improved it is still far from under-supplied. Reuters has texture:
“Mills are purchasing cargoes in small lots because they are not too positive about the future market for steel,” said an iron ore trader in Tianjin.
A weak housing market in China is dimming the outlook for steel demand in the world’s top consumer of the commodity. The growth in China’s housing prices slowed to a near one-year low in April and property investments have also eased.
Beijing has ruled out any big fiscal stimulus to aid the economy but has been introducing supportive measures including cutting the reserve requirement for more banks to shore up lending.
…”A buyer today can easily buy 5 million tonnes from the big three miners if they have the appetite for it,” said a trader in Singapore, referring to Vale, Rio Tinto and BHP Billiton.
The excitable Platts has more:
A mill source in central China said he heard other mills were now approaching traders for spot materials as they think now is a good time to procure iron ore with prices low enough to be attractive. The same mill source in central China said this strengthening would last until at least next week. “If the mills do not buy now, they are worried that they may need to pay higher prices for seaborne iron ore when the price is recovering,” said the mill source in central China.
I expect $100 to be the ceiling for the move unless more stimulus arrives.
