Daily iron ore price update (FT wrong)

Spot down. Paper was bashed lower by higher DCE trading fees. Steel is stable.

The FT is wrong:

Steelmakers are feeling the profit pinch. There are hints of overcapacity problems ahead for Chinese producers. There, the price of hot rolled coil, a widely traded steel commodity, remains down double digits year on year.

…This year the market is littered with early sellers of iron ore’s prospects. That strategy has clearly failed so far. Iron ore prices have reached five-year highs. Yet steelmaker share prices around the world, including China, have all fallen sharply in recent months.

That fact sends a strong hint that iron ore’s uncommonly good performance cannot last much longer.

Normally this argument would make perfect sense. When steel profit margins are squashed, steel mills destock raw materials to lower input costs which usually kills bulk prices.

But how are mills going to destock when both local and port inventories are already short?

Only one thing will change this market, a shift in the demand/supply balance of raw materials themselves. Either fundamental demand will have to come off materially or iron ore supply rise. There are signs the former could happen with weakening manufacturing and leading indicators in residential construction such as land purchases. But it is happening yet.

I have the solution being more supply, most likely from Vale itself. Morgan Stanley agrees:

“We believe the iron ore price is now starting to approach peak levels. We expect the iron ore price will come down in the second half of this year.”

“There are signs that steel output will slow, as utilisation rates fell 1% from their early May peak as peak construction season ends, while summer production curbs are in place in Tangshan until September.”

…“Brazilian shipments recovered from 2.5 million tonnes per week in early April to 5.5 million tonnes per week.”

“Taking into account the around seven week shipping time to China, this bounce in shipments hasn’t hit China’s ports yet, but arrivals should gradually improve from here.”

“the draw on port stocks will ease in the second half of this year”.

I agree but we need Brucutu first.

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