The ferrous complex remains paralysed by overly high iron ore prices. I have switched to Shanghai HRC (purple) prices from the national average, which may help explain some of the stickiness in iron ore prices.
Despite the recent price falls in steel inputs, steel remains unprofitable.
Production is being forced lower.
But slowly so far.
Bolstering sentiment was better-than-expected demand data with the average daily hot metal output, a gauge of ore demand, rising 1.1% from the week before to a three-week high at 2.37 million tons in the week as of November 13, data from consultancy Mysteel showed.
Ore consumption typically slows in winter as mills scale down operations as steel consumption languishes with low temperature hindering outdoor activities.
The trade remains down.
Since the onset of winter, weather-related disruptions have increased, and snow and rain are expected next week; coupled with environmental protection-driven production restrictions, transportation has also been somewhat constrained. To ensure production, some steel mills moderately increased their in-factory inventory, leading to a slight rise in port pick-up volume this week, which provided support for ore prices. However, looking ahead to next week, blast furnace maintenance is expected to increase, and hot metal production is likely to decline significantly. Ore prices are projected to be under pressure and fluctuate rangebound with a weaker bias.
CISA output rebounded in early November, but so did inventory, and it is still very high seasonally adjusted.
Telescoping out a moment, NBS output is a one-way train down. Steel output has crashed 4.4% this year through October.
But it is still mostly being absorbed by steel recycling, which is fast going out of business. The mystery is why the scrap price has not collapsed. The property crash appears to be cratering both steel long-product demand and scrap supply.
Port stocks of iron ore are through the roof at an accumulation rate of 2mt per week, 100mt annualised. Despite the recycling bust, there is clearly too much iron ore.
And MOAR is coming.
With the steel export valve closed and the recycled steel crash in full roar, iron ore-fed pig iron output and the iron ore that feeds it are surely the next domino.
