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