5 December 2018
- We assess short-term supply conditions as marginally bearish. Our Implied IO forward supply oscillator has weakened which should provide some support for a possible rebound in prices. As previously highlighted in an earlier report, an increase in imports is expected given greater supply from key exporters of IO. Persistent de-stocking by steel mills remains in place (since week 40). This is clearly a price negative development and the recent price correction could be a readjustment. However, as we approach the end of the year, this could change as mills typically re-stock during this period.
- Overall demand conditions remain marginally bearish. Margins have stabilized and are showing early signs of a rebound. This comes after close to two months of continuously narrowing margins. However, steel rates have trended lower alongside the recent pressure on margins. This could reverse if the latest rebound in margins holds. Our Domestic vs. Import Arb. is positive for the first time in 5 weeks. This suggests the re-emergence of demand for seaborne ore and thus a possible rebound in prices. Our cash and carry arb. has softened which reflects a temporary weakness in short-term demand.
- Short-term macroeconomic conditions are marginally bearish. The latest manufacturing data was weak and reflects the further slowdown of downstream manufacturing demand. Overall currency conditions remain supportive of price and, in fact, have strengthened in the past week. We see a marginal, albeit modest improvement in short-term lending conditions which would suggest some upward pressure in the short-term.