9 October 2018
- Short-term supply conditions as overwhelmingly bearish. Supply conditions look heavy with supply increases across the entire supply chain being picked up by our models. We expect further increases in imports arriving into China the next 2 weeks. These volumes are one of the largest in recent weeks and is expected to exert downward pressure on prices. Mills reversed into de-stocking and judging by the efforts are expected to push further supplies into the market. This is clearly a price negative development. In our view, such efforts would be temporary if margins and credit conditions gather further upward momentum.
- Overall short-term demand conditions are bullish. Steel mills’ profit margins remain firm. This should support short-term IO demand. Steel mills daily run rate slowed down with the holidays and expected to remain weak in the short-term as steel mills restart operations. Our Domestic vs. Import Arb. Indicator continues to suggest greater preference for seaborne ore. This is also supported by our Cash and Carry Arb. which continues to increase, indicating supportive short-term demand conditions.
- Short-term macroeconomic conditions are overwhelmingly bullish. The latest manufacturing data suggest stronger downstream re-stocking efforts which along with the latest construction figures we have on our hands continues to suggest firm steel demand and therefore IO demand. Currency conditions strengthened further since bottoming in week#36. This remains one of the key drivers for IO prices. Credit conditions remains accommodative, albeit only strengthening marginally, which should support IO prices.