Spot at new bubble highs. Paper even higher. Steel is still going nowhere indicating that steel mill margins are getting smashed. The charts:
For me the news of the return of Brucutu is the beginning of the end for the bubble. There are further supports ahead:
- the PBOC will cut interest rates the moment that the Fed does;
- trade war rhetoric will ebb and flow;
- as Vale volumes return, steel mills will restock inventories;
- Vale volumes have not returned yet but 50mt will over H2.
But all of this is priced well below these levels. At these prices the market is incentivising new production that it does not need as Vale volumes return. So it is purely sentiment driven, which can rise or fall at any time.
I can see prices holding up until Q3 but they may well fall before then as well. So, for those interested in shorting this market right now looks a pretty good time (not advice). I’d be looking for one year puts on big miners.