Mwahaha! UBS with the note:
A drop of US$60/t or 25% in 3 weeks is impressive… the market seems concerned that China will force steel curtailments in 2H. There is another $60+/t to go…
Iron ore prices are falling as China appears to be enforcing its target of steel production being flat y/y in 2021 (which implies Jul-Dec crude steel production is to decline 59Mt h/h to 502Mt based on the NBS data). The 10-day CISA data shows daily pig iron production is down ~6% in July vs June (Figure 5/6); key steel producers (incl Baowu) have also announced plans to cut production in 2H. This has resulted in mills destocking and iron ore prices falling sharply in a thin spot market. Other policy developments are mixed: the govt remains focused on controlling the leverage of developers and property prices (audio) but is taking measures to accelerate infrastructure construction (note); this has resulted in steel prices lifting while iron ore prices fall. At end-July, the Politburo also called for a correction in “campaign-style carbon reductions”; this is however expected to mainly target China’s thermal coal, not steel, industry. We note iron ore exports have not yet lifted materially from Australia or Brazil although producers’ guidance (mainly RIO & Vale) implies supply will lift ~ 60Mt h/h in 2H21 (note). We expect the China’s steel curtailments to be targeted in 4Q when demand slows seasonally and air pollution is in focus (especially ahead of the Winter Olympics in Feb-22) and as a result we expect prices to stabilise in Sept/Oct before continuing to fall back <$100/t in 2022.
