The ferrous complex was strong on July 5, 2021 as spot firmed, paper went nuts and steel lifted:
Reports suggest that this is owing to more steel output after the 100 year CCP birthday party:
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“As Tangshan resumed production, short-term demand will return to pre-centenary level,” analysts at SinoSteel Futures wrote in a note, adding that overall demand was still weakened by steel cut policies.
That makes no sense. The steel price should fall then and drag down iron ore with it.
It might just be seasonal. The new financial year usually brings a lift in restocking for a few months. Or, there was this:
June survey data signalled a slowdown in Chinese service sector growth, as an uptick in COVID-19 cases and reduced travel dampened demand. Notably, both business activity and new orders rose at the slowest rates for 14 months. At the same time, there were signs of reduced pressure on capacity and business confidence softened, which led to a slight fall in employment. On the prices front, operating expenses rose only slightly in June, while prices charged fell for the first time since July 2020.
This PMI includes construction. These days, such sharp slowdowns usually lead the market to do the opposite as it expects MOAR stimulus.
For me, it is too early this time around. If Beijing were to juice credit already, then commodities will skyrocket. I still think it’ll play chicken with a price bust first. On that basis, expect any further run higher in iron ore to be greeted by another jackboot from Beijing.
That said, you never know. In the post-COVID world, conviction on anything can be costly.