17 May 2019
- We now assess short-term supply conditions as bearish. While forward supply conditions are marginally tighter, we continue to pickup higher import arrivals into China in the meantime. Re-stocking efforts stalled and in fact reversed. As a result, such actions continue to push out more supplies into the market which can also be seen in our spot supply indicator. These are all price negative developments. It has brought to our attention such weak re-stocking efforts by mills as weakening margins as well as lower credit availability continue to curtail such efforts.
- We are marginally bearish in our short-term demand conditions. Weakening steel mills’ margins continue to attract our attention after peaking in week#16. Weakening steel prices have a large part in contributing to this. Hence, we are also seeing some early signs of slowing steel rates. This doesn’t bode well for short-medium term IO demand. However, our Domestic vs Import Arb. reversed and as it stands suggest marginally higher preference for seaborne material vs domestic ore. Our Cash and Carry Arb too strengthened which would encourage further unloading of inventories in the short term.
- Short-term macroeconomic conditions remain bullish. Downstream steel demand (manufacturing and construction) remains firm, with the latest construction data reflecting improving construction activities. Our currency models too demonstrate renewed strength as the relative lower depreciation of exporting currencies against that of importing currencies helped to ensure overall conditions remain positive for prices. However, our models are showing deteriorating credit conditions. Such weakness would hamper any short-medium term demand.