The ferrous complex took on the outlines of a circus yesterday as everything rallied. Spot was up. Paper up more overnight. Steel too:
The trigger? This:
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Authorities had urged local long-process steel producers to cut production by 30%-50% in March to improve air quality, sparking supply concerns as the city accounts for more than 13% of China’s total crude steel output.
But an industry source told Reuters the plan is still under discussion and has not been officially approved yet.
You’ll pardon my skepticism but the entire ferrous complex has been rallying for weeks on the output curbs. Yet, now they are to be dropped and the entire ferrous complex…rallies.
My own view is that curbs are overegged as a price input. The output curbs made no difference because there is so much spare capacity outside of Tangshan. The lifting of them will be the same.
These are just excuses for speculators to push around short-term bets.
Bottom line: iron ore is rallying too fast for steel. Unless steel can catch up then mills will be forced to destock as margins crater and iron ore will fall again.