Daily iron ore price update (Winter Olympics annihilation)

The ferrous complex is inhaling deeply on the crack pipe again as spot and paper hold while steel firms:

The state of iron ore commentary in the press today is embarrassing. Just because some company says something doesn’t make it true. Indeed it usually means the opposite is likely:

Vale said on Tuesday it would produce between 354 million and 373 million tonnes of iron ore and iron-rich pellets in 2022, and a slide presentation said 400 million tonnes would be achieved in the medium term.

Asked to clarify the guidance, Vale chief executive Eduardo Bartolomeo said it could be as late as 2024 before the miner achieved the 400 million tonne rate.

“Medium term is 2023, 2024, because we don’t want to be caught in the trap that we set in the past [by saying] we are going to be running at a run rate of 400 million tonnes at the end of 2022,” he said on Tuesday morning.

In 2019 sales slumped to 312.5 million tonnes and by 2020 sales had slumped to 286 million tonnes when a high number of coronavirus infections further hampered the company.

…Mr Bartolomeo said he was not expecting any dramatic improvement in iron ore demand until next year’s Beijing Winter Olympic Games were concluded on February 20.

“We see the market getting softer until the second quarter [of 2022] for sure, the first quarter is, until the Olympics, going to soften.

“We don’t see a hard landing next year, if the hard landing were to happen it would be now.”

Why would the Winter Olympics play any role? None of the shuttered production today is because of the Olympics. It is all because demand is already in a hard landing.

Check out yesterday’s Steel PMI which registered 36.6 at the headline and a catastrophic 25.9 for new orders. This is the worst I have ever seen. Worse than when the entire Chinese economy was shut down for a pandemic. Worse than the GFC. Worse than the 2015 housing crash:

Here’s the commentary:

In November , the lack of demand still affected the market’s nerves. Due to the winter in a large area during the month, the temperature continued to drop, which restrained market demand. The new order index was 25.9%, refreshing the lowest value this year. According to Shanghai Zhuo Steel Chain’s understanding, current domestic demand has diverged, and the north has significantly contracted due to the cooling effect. The performance of the East China and South China market is acceptable, but overall demand is not good, downstream procurement enthusiasm is average, and short-term recovery efforts are limited. Steel exports also continue to show a downward trend. First, the output of domestic steel companies continues to decline. Second, India, the United States, Japan and other domestic products can recover quickly, and the overseas gap is gradually filled. Third, the cancellation of export tax rebates has weakened the competitiveness of domestic steel. . The new export order index was 34.8%, a decrease of 3.9 percentage points from the previous month, and was lower than 40% for five consecutive months.

The only reason that iron ore is not trading under $50 already is because 120mt of EAF steel recycling output is offline owing to the power crisis:

When it turns back on, then all steel raw materials will crater as 200mt of iron and 100mt of coking coal are no longer needed.

Given the Winter Olympics transpire at the conclusion of the cold season in early March, at the pivot to lower power demand across the economy when EAF will be free to restart, the event looks like a good inflection point for the annihilation of BOF and its raw material inputs.

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