Daily iron ore price update (dead cat screamer)

Bloomie has the trigger for the fun:

China will maintain “reasonably ample” liquidity and “reasonable growth” in aggregate financing as it implements a prudent monetary policy, the State Council’s financial stability and development committee says at a conference chaired by Vice Premier Liu He.

  • Various risks are “controllable” overall as the economy is stable and financial system is stable and healthy, a statement about the State Council meeting says
  • China will encourage banks to replenish capital using more innovative tools and improve support of the real economy, especially for smaller companies
  • China will increase counter-cyclical adjustments in economic policy
  • The statement reiterates a proactive fiscal policy

A little more support from fiscal but we don’t know what and it is still unlikely to be large enough to make any difference if China wants to pressure Trump via the channel of economic weakness, not to mention its own slowing growth as manufacturing recedes and realty slows. Via Bloomie:

All three of the country’s biggest residential property firms reported a drop in the number of full-time employees in their first-half results, the first simultaneous downsizing since 2015, Bloomberg calculations show.

“The drop in staff numbers is closely related to the home-market headwinds,” said Yan Yuejin, a lead analyst at E-House China Enterprise Holdings Ltd.’s research institute. “As developers face weaker sales and slow land buying, they need fewer people in investment and marketing, and they have to think about how to cut costs.”

Clyde Russell sums up stimulus hopes nicely:

…in prior episodes of weak PMI outcomes, it’s difficult to see conclusive evidence that this has resulted in a boost to iron ore imports in anticipation of stimulus spending, despite this view being widely promulgated among market participants.

When the PMI dropped to 50.3 in February 2018 from 52.4 in September 2017, iron ore imports were effectively tracking sideways even though month-to-month swings were quite volatile.

A recovery in the PMI from February 2018 to a peak that year of 51.9 in May 2018 wasn’t accompanied by rising iron ore imports – they were actually weaker on a year-on-year basis.

As the PMI starting weakening from May last year onwards, iron ore imports also weakened, further undermining the view that a softer PMI results in a boost to iron ore on the back of stimulus spending.

Yep, until I see real stimulus, much bigger than we’ve seen so far, this is just a dead cat bounce for iron ore. To the charts:

Spot limit up. Paper went further overnight. Steel has not updated. The steel PMI is sinking with domestic new orders at the weakest since the 2015 crash.

My feeling is that the long awaited housing starts slowdown is landing on an already contracting industrial sector. Demand is in trouble and steel inventories are huge.

Some support for iron ore did appear in Brazil:

Iron ore exports dropped 15.5% year-on-year in August to 30.1Mt. Exports dipped 12% compared to July, when shipments reached 34.3Mt, according to figures from Brazil’s foreign trade department Secex released on Monday.

That’s a disappointing month. Still, with Vale still to return 20mt more ore in the next few months I expect year on year comparisons to be roughly flat through Q3/4.

The worst is yet to come for iron ore.

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