Daily iron ore price update (Pavlov’s dogs)

Texture from Reuters:

Steel output was also curtailed by poor profits at mills.

Besides surging iron ore prices that have pressured steel firms this year, analysts also noted that output from electric arc furnaces has been affected by higher scrap steel prices.

“The price for steel scrap increased by almost 100 yuan ($14.30) per tonne in October from a month earlier,” said Tang Chuanlin, analyst with CITIC Securities, attributing it to a supply shortage and seasonal factors.

“Output will continue to drop over the last two months of the year,” Tang said before the release of data.

So why did the market take off? The charts:

Simple. Yesterday’s China data dump was weak so we got the usual Pavlovian response from Dalian traders expecting more stimulus. It’s not clear to me that we’re going to see much of it. How do you stimulate from this:

Building is already completely out of control. More has never been a problem for China before but even it has its limits. It would need to go all in for another 2015 splurge to kick this materially higher.

Don’t get me wrong. The economic working group is yet to report and will probably bring more incremental stimulus. But I don’t think it will be aimed at the old economy or be very sizable.

My outlook remains down for iron ore, with Q2, 2020 the key deadline but risks of earlier. This time I expect Pavlov’s Dalian dogs to go hungry.

David Llewellyn-Smith
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