Cause, frankly, it’s obvious:
The lift in iron ore inventories together with the lift in prices is unusual. Higher inventories normally tend to put pressure on prices. The deviation in this relationship over the last month is concerning too in that trade and production data suggest heightening surplus risks in iron ore markets. China’s iron ore imports have lifted by 9.0% y/y in 1H16, while crude steel production has slipped 1.1% y/y in the same period. On top of that, there is evidence in May and June that domestic Chinese iron ore production lifted due to the pick-up in prices.
As these temporary factors subside, we expect Chinese steel and iron ore prices to weaken in coming months. We see iron ore prices returning to $US45/t (CFR China) in 2H16 as surplus risks mount.
Yes.
