The ferrous complex bifurcated violently yesterday as Chinese premier Li Keqiang stuck his foot in his mouth. Spot iron was firm. Paper soared overnight. But steel was caned:
The driver was the release of this tidbit:
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“Overall economy and operation of enterprises have continued to recover, but surging international commodity prices have brought great pressure on companies’ costs,” official Xinhua news agency cited a symposium chaired by Li last week.
Li asked to strengthen market regulation of raw materials to ease the cost pressure of companies, according to Xinhua.
The market reaction was the complete reverse of the intended outcome. I can’t understand why. Especially so since base metals markets all went the other way:
If China did decide to do this with iron ore. And simply refuse to buy it at more than, say, $120 per tonne, it would have zero impact on global supply. That would still be a price easily high enough to bring more of it.
Perhaps the market reacted to the minor damage in WA supply inflicted by Cyclone Seroja. Or this is the expected strong seasonal pattern. Or, the Li comments simply underlined for markets that the market is tight. Yet, none of that explains falls in the steel price.
All I can say is that if it did trigger the price action then it is highly irrational.