by Chris Becker

Today’s price update on the iron ore complex:

In addition, Tianjin delivery spot price fell below $70USD to $69.80, and while the 12 month swap increased, across the curve prices remain below the critical $70USD per tonne mark.

This is reinforced by the Dalian six month future price, still stuck:

And rebar of course, with no end in sight to this key demand product:

The question if a “bottom is in” has been raised this weekend again, from the middle of the road stock pickers to the investment/economic houses. We’ve seen a considerable rally in oversold junior iron ore mining stocks post Christmas, but momentum is waning as the structural reality lifts the dreamlike delusion of future triple digit iron ore prices.

Speculation continues to mount that another round of Chinese infrastructure stimulus will save the iron ore complex. But this has some interesting implications:

The surplus in iron ore supply that began to emerge at the beginning of the year is expected to widen to about 300 million tons by the end of 2017 as major producers such as Rio Tinto and BHP Billiton continue to consolidate their output into bigger, more productive mines.

Over the past year, the IHS Material Price Index has fallen 20%. The advisory firm’s chief economist, Nariman Behravesh, expects that commodity prices will slide by a further 10% on average this year, despite the increasing chance that China’s government will underwrite a massive stimulus programme to revive growth.

“A combination of feeble global demand growth and strong supply growth is to blame. China remains key to the demand-side story,” said Behravesh. “Any further softening of growth will likely translate into another round of price declines.

“Unfortunately, if the Chinese government chooses to boost growth by encouraging investment to expand industrial capacity, this could exacerbate the excess-supply conditions in sectors such as steel and chemicals.”

Investors need to be aware that large rallies (50% or more) in stock prices do not reflect the underlying structural realities, but more often reflect speculative reactions to stimulus, weather and other patterns. Another round of stimulus by the Chinese authorities could see iron ore rally as traders in the Middle Kingdown double down again, but it will likely be short lived as the huge supply glut continues to grow and global aggregrate demand slips further into deflation.

Daily iron ore price update (sub $70 again)