Daily iron ore price update (here come the bears)

Reuters has the texture:

Chinese iron ore futures fell nearly 5% on Wednesday after miner Vale SA won approval to resume some processing operations, while Shanghai rebar steel extended losses into a sixth session.

The Brazilian miner said the move at the Vargem Grande complex should add 5 million tonnes to annual production, and reaffirmed its 2019 guidance for iron ore and pellets sales, easing concerns over supplies of the steel making ingredient.

Here come the bears. With UBS leading:

Yep. Close on its heals, Liberum:

“the top may be in for iron ore.”

“In particular, steel inventories at traders have been unseasonally restocking, iron ore port inventory declines have stalled (actually built last week), spot steel mill profitability in China has now fallen to break-even levels and supply from scrap steel and domestic iron ore appear to have accelerated.”

“After Rio Tinto’s strong performance year-to-date (+30 per cent), we now focus on our expectation that iron ore pricing is approaching a turning point with momentum in China port inventory drawdowns slowing and supply continuing to recover.”

“This factor, combined with a lack of meaningful valuation support, leads us to downgrade Rio Tinto to Underperform from neutral.”

And on Vale’s Vargem Grande comes BMO:

“This is small . . . but it is a positive in that the regulator is presumably willing to accept evidence demonstrating safe operational performance.”

It’s only a matter of time now. The UBS timetable for price falls doesn’t look very seasonal. Iron ore is more likely to be weak in Q3 then rise in Q4 but the trend back $80 over the next three quarters is right. Then again, if Vale volume come it will happen. Moreover, I see iron ore continuing to fall as Vale rebounds faster than expected on expanding S11D and Chinese demand remains weak. There is an approaching glut now that will need to be shaken out.

To the charts:

Spot hit. Paper held on. Steel is breaking down. More to come.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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