Daily iron ore price update (down, down)

Reuters has texture:

Tangshan had stepped up anti-pollution measures over July 21 to 31 to meet its air quality targets, requiring some steel producers to curb their operations by up to 70%.

Traders and analysts said there was talk that curbs would be extended beyond July, although the August restrictions may be less strict.

The plan calls for a 20%-50% limit on sintering machines’ output, and 50% for some blast furnaces or a total shutdown, depending on emission levels, they said.

“For the moment, the new restrictions are only for August, but I believe this policy could be extended further,” a Shanghai-based trader said. “I think the government will continue the policy to prepare for the big events in October.”

Either way is bearish now. More steel equals falling prices. Less equals less iron ore. To the charts:

Spot hit. Paper more overnight. Steel appears weak. The weak hands are leaving, at MySteel:

Chinese iron ore traders are drawing down their inventories of iron ore at hand, aiming to maximize their profit margins while ore prices continue to hover at their prevailing high levels, market sources observed on Wednesday.

Suddenly demand looks dodgy, via the Argus:

China’s steel sector purchasing managers index (PMI) showed further sectoral contraction in July on the back of a slide in output and new orders booking.

The steel PMI in July was lower by 0.3 percentage points from the previous month at 47.9, according to the China steel logistics professionals committee (CSLPC) that produces the index. A score below 50 implies a deceleration in the sector’s performance.

The steel production sub-index was lower by 0.6 points at 48.5. The raw materials import index was also in the contraction zone at 46.8.

The new domestic orders sub-index slipped by 2.1 points to 45.8, the third successive month of a contraction in orders booking. Hot and rainy weather in south China blocked construction work hurting steel demand, although the rainy season is now at an end with demand bouncing back, said the CSLPC.

China’s official manufacturing sector PMI also remained in the contraction zone for the third successive month at 49.7 in July, although the score was higher than 49.40 in June.

The steel market remains oversupplied that could pressure prices in the short term. The China iron and steel association Cisa put end-July steel stocks with trading firms in 20 main cities at 12.71mn t, a 4.3pc on-month increase, with most increases in stocks of hot-rolled coil and rebar.

Steel demand seasonally slows during June-August before peaking in September and October.

While steel mills face sluggish demand, their profit margins are being pared by the high costs of raw materials, such as iron ore, coking coal, scrap and billet. The raw materials purchase price sub-index was higher by three points in July at 66.5.

The CSLPC expects an increased in imported iron ore arrivals in the short term to ease supplies and pressure iron ore prices.

The chart:

Iron ore is going lower.

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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