The ferrous complex surged on June 28, 2022:
Enough good news out of China’s recent wins against COVID and lifting seasonal tailwinds were enough to trigger the rally.
Seasonality can be especially powerful for iron ore so do not overlook that factor. Th next two months are typically very strong before we get crash into Sep/Oct weakness.
The trade shock is still coming. Even more so after Chinese recent COVID wins given they are lifting the oil price and US inflation.
A lot of cross-currents in other words but the safe play is still to trust seasonal patterns for any next leg lower.
The latest sales charts for property sales still show a good post-COVID bounce so I’ve modelled a few scenarios for steel demand:
If sales continue to fall at 20% year on year then the chart looks like this and steel is doomed:
If sales bounce to flat year on year from July, which is possible given the base effects from the crash starting in H2, 2021, then starts will play out like this and steel is still doomed:
If sales immediately rebound at 20% for H2 then steel demand will flatten out and rise pretty quickly:
I would put the odds on each of these at 45% for the first, 35% for the second and 20% for the third.
In short, the odds still heavily favour another down leg for iron ore prices in H2, modulated by seasonality.