Daily iron ore price update (what could possibly go wrong)

Some days you just have to laugh. The ferrous complex went mad on January 28, 2022:

Clearly, there was some whack blowoff going into the Lunar New Year holiday. Is there any actual support for it on the ground?

The PMI was out yesterday and said nope. Here’s what it says about the critical end-user industries:

From the perspective of the industry, the business activity index of air transport, telecommunications, radio and television and satellite transmission services, Internet software and information technology services, monetary and financial services, insurance and other industries is in a relatively high boom range of 55.0% and above; railway transport, road transport, accommodation , capital market services, real estate, residential services and other industries business activity index is below the critical point.

The steel PMI was even worse. The headline launched because production has jumped but new orders are still falling fast, if a bit slower:

In black and white:

While the production side is picking up, as the temperature continues to drop and the Spring Festival holiday is approaching, the demand side is showing a trend of contraction as a whole. In January 2022 , the new orders index was 40.6%, which continued to be below 50%, indicating that demand continued to be tight overall. However, from the perspective of market transactions, the demands of steel traders and end-use steel parties are differentiated. In terms of steel traders, due to the influence of factors such as market outlook expectations, the willingness of steel traders to store in winter has increased, and the demand for related winter storage has been released, which has driven the new order index to increase by more than 10 percentage points month-on-month. In terms of terminal demand, the operating rates of downstream infrastructure and real estate have fallen across the board, and the demand for terminal steel has declined. According to Shanghai Zhuo Steel Chain, as the Spring Festival is approaching, the demand for the steel market shrank significantly in January, and merchants generally left the market. Judging from the monitored terminal wire and screw procurement data in the Shanghai market, the average daily procurement volume of terminals in January dropped significantly by 31% month-on-month.

In short, the current iron ore bid is a hot money hoarding boom. Cue the CCP!

China’s top economic planners have pledged to crack down on the speculative trading of iron ore and stabilise the domestic market after “abnormal” price rises in recent weeks.

State planning body the National Development and Reform Commission (NDRC) warned of “abnormal fluctuations”, as the price of the key steelmaking ingredient rose by nearly 60 per cent from mid-November to US$138 per tonne.

“The government analysis found that the demand and supply is overall stable and domestic stockpiles are at their highest in years. We found a speculative factor in the recent fast price hike,” an NDRC statement released on Friday said.

You don’t say.

Steel demand is still headed for weak annual demand in 2022. Chinese stimulus is modest so far. The commitment to the property adjustment is intact. OMICRON is escaping containment. The Fed is hiking aggressively into enormous US pile of imported Chinese inventory. And now Chinese authorities are on the march which marked the top and crash of the last blowoff.

What could possibly go wrong.

Houses and Holes

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