The ferrous complex was flushed away on November 3, 2021 as spot, paper and steel all crashed. There was a little repair for futures overnight:
The trigger was Chinese port stocks which piled on another 4mt to 146.5mt last week:
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The port inventories to steel output ratio is back at record highs:
Rising inventories means that apparent iron ore demand is stronger than underlying. When steel mills are satisfied with inventories which, frankly, they ought to be already, they will stop accumulating it and millions of tonnes of iron ore demand will vanish.
If that is not bad enough, mills may decide that there is no stimulus in prospect and destock this mighty hoard, inverting apparent demand below underlying for a time.
Worse again, there is a reason to consider that this is a real possibility. There is still 120mt of EAF scrap steel capacity offline in China owing to the power shock. It will resume as thermal coal crashes and power restrictions lift:
This is another 200mt of iron ore demand that is going to die in the next quarter and when it does, why wouldn’t steel mills destock their increasingly worthless piles of dirt?
Worst of all, the steel price is now crashing because falls in demand owing to the Chinese construction collapse are outpacing production cuts.
Steel output in 2022 is now shaping as down 20%. This is 200mt of output or 300mt of iron ore. There are 40mt of new supply coming as well.
If China let’s this run another quarter or two then the seaborne iron ore market will need to start pricing the rationalisation of all junior seaborne producers and all of Fortescue as well. That means an iron ore price so low that it might as well be worthless.
The last time I saw a market this oversupplied was oil during the global COVID shutdown when I correctly predicted that the price would go negative.
Could iron ore do the same? It’s glutted beyond belief. There are enormous inventories everywhere. Idle iron ore costs money and if you can’t give it away then perhaps people will take it if you pay them. Probably not but you never know.
I feel a bit like a madman draped in an a-frame when I write posts like this but the facts are the facts.