Here are the iron ore charts for June 3, 2014:
Paper markets are confused. 12 month swap marginally deepened the contango with spot but shorter term Dalian futures fell to record lows. By rights it should be the other way around. The 12 month is too high for one year out and the six month is too low. But that’s assuming futures have anything to do with reality, as opposed to being reference points for spot. Rebar futures hit record lows too.
Physical was alos mixed. I suspect cheaper prices are bringing in more steel mill buying which has arrested the spot slide and the Baltic Dry capesize component launched 8% yesterday. But rebar average has rolled again and the signs of steel activity are, in anything, deteriorating.
Yesterday saw the release of the May steel PMI, and although this index is volatile, it is telling us something significant that it has plunged into weakness at a point of seasonal strength, down 6.2 points to 46.4. Production weakened 7.6 points to 45.4%, the raw material index fell 2.8 points to 43.2 and new orders crashed 12 points to 45.8. Export new orders were better, easing half a point to 51.6. Steel inventory jumped to 58.6 up 4.6 points and the purchase price index (for steel) dropped 20 points to 26.1, the lowest reading since September 2012.
That is one ugly mix of figures and, to my mind, delineates the blowback into steel from the housing bust.
Unless it turns around with more stimulus then the buying activity will be brief and we’ll face the possibility of flat or even falling overall steel production in China this year which will not be good for iron ore in the second half.
