The ferrous complex was mixed on July 20, 2021 as spot fell, paper fell further overnight but steel lifted:
This divergence between steel and iron ore is what China is attempting to engineer. Via Reuters:
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“Currently, the biggest variate to affect steel prices is crude steel output control policy … which is gradually being implemented and widened,” analysts with Huatai Futures wrote in a note.
As we know, steel output has been falling back, even allowing for the centenary shutdown in Beijing:
The question is, can Beijing break the nexus between higher steel prices and higher iron ore prices? Whenever it has tried this before it has failed. The iron ore market has either had the muscle or muscle memory to track steel prices higher. There is also the fact that the moment steel mill margins improve, steelmakers race out and restock ore, lifting prices.
We can’t discount the possibility that a more concerted effort succeeds but I am skeptical.
I am more inclined towards price weakness simply because demand is going to weaken at the macro level just as supply improves.