Daily iron ore price update (steel cliff)

The ferrous complex was weak on October 25, 2021 as spot firmed, but paper fell overnight and steel looks to be breaking down:

The key chart now is this:

China’s immense steel output cuts have protected steel prices so far this year. But underlying demand is so bad that inventories have been stable anyway.

Most recently, the coal bubble has cut 120mt of EAF output owing to electricity rationing. But, as the coal bubble deflates and power becomes available, the steel recycling will resume and that will displace 120mt of BOF production. That’s another 190mt of iron ore demand (or a very large number whatever it is) that will tumble out of Chinese demand for raw materials.

As things stand, we are at the threshold of an enormous glut of steel, iron ore and coking coal in China.

Over the next year, I expect steel and iron ore prices to at least halve. Coking coal should fall by two-thirds to three-quarters.

It may well happen over the next 3-6 months.

Houses and Holes
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