From Mac Bank:
Steel production cuts have accelerated in China – in the first ten days of July,CISA mill production was at only 622mtpa, down by 6.1% YoY – the largestYoY drop of the ten-day series since mid-February. On a sequential basis,CISA production was down by almost 2% from the last ten days of June –something in line with the findings of our July Steel Survey. Given that cashlosses widened further in the past week (to almost US$50/t for HRC by ourestimate), we expect further production cuts to be seen – we expect at least 5%over the coming six weeks. Moreover, as the September parade in Beijingdraws nearer, there will be increasing pressure from the environment front onHebei steel mills to curb production in July and August. This should help steelprices as steel inventory draws down – indeed, trader inventory dropped by 3%last week after ticking up in the last several weeks. MySteel reported that thebillet price surged by RMB140/t over the weekend, and the HRC price rose bymore than RMB100/t to RMB2,020/t in Tangshan. Meanwhile, The Steel Index 62%Fe CFR China iron ore assessment rose 3.8% to $51.9/t.
Normally analysts get excited for iron ore when steel cuts transpire because it augers better profitability for mills and restocking of materials. This time I see this as a big negative. RIO and BHP are puking iron ore right into a steel sector that about to drop output to 2012 levels. Days of use on hand of commodities for mills will rise on the production cuts alone.
It is not going to end well for the iron ore price.
