From Credit Suisse:
The long-awaited iron ore supply wave has retreated again and remains distant. The Samarco disaster has clipped Brazilian supply by 39Mt in 2016, including the 9Mt Vale expects to lose due to the deluge cutting a conveyor belt between two mines. Furthermore, there is no sign of the first exports from Roy Hill and they may not appear this year. Its previously planned exports of 35Mt in 2016 may be a stretch from a standing start – 25Mt might be more feasible. Overall, supply could reduce almost 50Mt from our previous forecast for 2016, without counting domestic supply in China, which falls (up to 60Mtpa) at a price below $50/t. (Figure 3). 2016 supply weakness will be weighted towards the first half.
■ But the iron ore price is weak anyway, as it’s reflecting steel prices. Demand is the key issue now. Chinese steel mills continue to clock up losses, even the majors such as Baosteel, which lost $141mn in 3Q. Mills have curtailed some blast furnaces (Figure 1), but few mills are idling. Instead they are lowering their iron ore stocks and holding on. Steel output has dropped – 3Mt YoY in Sep, but not enough yet to drive a surplus.
