30 May 2019
- Our assessment of short-term supply conditions remains bearish. We expect higher forward supply availability which should apply further downward pressure on prices. Chinese imports should also increase as key exporters push out more supply to counter the loss in volumes observed in previous months. Re-stocking efforts re-emerged from week 20-21, which was surprising given the slump in margins. We believe this development is temporary, with the latest data showing slightly weaker restocking rates. As such we also observed an increase in spot supply availability.
- We remain bearish on short-term demand conditions. Weaker margins remain our key concern as mills contend with weakening steel prices, whilst raw material prices remain elevated. There are still early signs of slowdown in steel rates which would be a negative development for IO demand. Our Domestic vs Import Arb. suggests a greater incentive to import material from the global market. However, our Cash and Carry Arb has weakened, which could result in a further accumulation of inventory in the short-term.
- Short-term macroeconomic conditions remain bullish. We expect new manufacturing data in the next few days which will give us further guidance on downstream manufacturing steel demand. However, our early assessment of construction demand points to a further slowdown which would add pressure on steel prices (and hence margins). Our currency models also demonstrate renewed strength as a consequence of the continued appreciation of importing currencies.