It’s never a dull moment for bulks, via Credit Suisse:
■ Question: what would the iron ore price be if China’s steel output fell 180Mtpa to 670Mtpa? This is the output rate the Government is planning for four months starting 15 Nov—curtailing steel mills by 50% in five provinces near Beijing that produce 43% of China’s steel. China’s output is annualising at about 850Mtpa this year, so the math points to a loss of ~60Mt in four months or 180Mtpa. We estimate that demand for seaborne iron ore will drop over 70Mt through the winter (Figure 1), which seems certain to weaken the seaborne price – we forecast $55/t through DecQ.
■ Short term short; mid-term long: Last week our strategists suggested taking profits on miners as it was difficult to see incremental upside, given the strong macro environment: Australian Investment Strategy: Still long commodity producers, but less so – 14 Sep 2017. We would go further, given the demand outlook—iron ore miners are looking like trading shorts into 4Q. We believe the ore price weakness will begin in October and deepen towards the end of the year. But step forward to December and we believe miners would be long plays again as steel mills will buy iron ore ahead of the end of curtailments on 15 March. We forecast $65/t for iron ore in 2Q18.
