6 November 2017
- Our bearish market view initiated on 9th August has so far delivered the expected result. The return-to-date is +12.37%. Based on the latest update of the model, we remained bearish with a conviction of -1.60.
- This is based on our current assessment of supply, demand and macroeconomic conditions.
- We estimate the short-term supply conditions as bearish. Mills’ re-stocking efforts remain tepid and continue to weaken. This development along with expected increase in forward supplies are likely to put further downward pressure on prices. The pace of growth in spot supplies is displaying some slowdown which along with lower IO imports into China are likely to support prices.
- We see short-term demand as marginally bearish. Profit margins continue to climb amid lower input costs. Steel rates however continue to decline. Our domestic vs. imported ore arb and cash and carry arb indicates the lack of incentive to buy/store seaborne IO which are additional headwinds for prices.
- We conclude short-term macroeconomic conditions as bearish. Downstream steel demand turned weaker as the latest manufacturing data reflects deteriorating manufacturing demand which along with our construction demand index are price negative conditions for IO. Our currency impact index continue to weaken which is likely to put a drag on IO prices. Short-term credit liquidity continue to expand which is expected to offer support for prices.