The ferrous complex firm on May 16, 2022. Spot did not update:
Yesterday’s China data has left me scratching my head. The numbers were disastrous across the board. With the exception of steel output which was only down 5%:
Versus cement down 19%:
I can only surmise that steel is stronger owing to accumulating inventories. My guesstimate is below:
On the demand side, property starts are down 44% year on year with equates to a drop of roughly 17% for steel demand. Infrastructure is not an offset given lockdown. According to MySteel gauges, that is spot on:
So, year on year steel demand in China is down 175mt. Reductions in recycling have absorbed roughly 60mt of that:
Which still leaves us with 115mt less steel and 185mt lower iron ore demand than last year. The rest of the world’s steel production is flat, at best, year on year. And Chinese exports of steel are down despite Urkaine.
Then there are the rolling annual falls in Chinese property sales, which probably best captures the timing of steel demand in property construction, indicating another 10% fall ahead, or another 40mt of steel and 60mt of iron ore:
That said, this last downdraft may get offset by infrastructure given lockdown delays.
In terms of iron ore supply, Q1 was weak but it is now flat and will boom in H2 if miners are to reach volume targets.
In short, the current level of slack in the ferrous markets points to much lower prices than we have. Hoarding can partly account for the gap between very weak steel demand and booming supply, but, perversely, China is depleting its iron ore reserve:
All of these measures have been road-tested successfully for a decade and they are all saying the ferrous complex is overpriced.
Yet here we are.