Daily iron ore price update (limit down)

The ferrous complex was blasted lower on July 30, 2021 as spot was thrashed, paper was limit down, but steel firmed:

The chart:

The correction is happening for three reasons:

  • Chinese regulatory clamps to slow steel output.
  • Falling demand growth as Chinese property and infrastructure slow.
  • Increasing global supply.

There are have been three episodes of $100 corrections in the iron ore price in the past decade: 2008 in a few weeks, 2012 in a year and 2015 over 18 months.

My probability cases for this very likely -$100 correction are:

  • 45% base case it takes one year.
  • 20% risk case it takes 18 months.
  • 20% risk case by year-end if an Evergrande shock delivers a disorderly developer shakeout.
  • 15% tail risk case of higher prices on another Brazil shock.

One way or another we’re very likely going down and it will get worse in Q3/4 this year.

Houses and Holes
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