18 July 2019
- We turn bullish in our overall assessment of supply. Forward supply conditions look to tighten, which along with the lower arrivals going into week 30, should keep inflows into China controlled, which are price positive developments. Steel mills, while still in net destocking mode, have picked up additional material of late. This has helped to tighten our spot supply indicator. However, as it stands, the index remains bearish for prices.
- We are bearish on current demand conditions. Margins continue to increase since bottoming in week 25. There is growing evidence to suggest that this is partly due to lower steel rates which would mean lower demand for IO. Our Domestic vs Import Arb. continues to soften which will erode some demand for seaborne ore. Similarly, our Cash and Carry Arb. weakened further which would explain the slower drawdown of IO in ports.
- Overall, short-term macroeconomic conditions remain bearish. We continue to pick up weakness in manufacturing and construction activity, which should mean steel demand comes under pressure. This will require more proactive management on the steel supply side (negative for IO demand) to further prop up steel prices. Currency conditions remains firmly supportive of further upside in prices. This comes on the back of renewed weakness in the US dollar which is gathering further upward momentum. Short-term credit conditions looks to slowdown which is another price negative driver to add to the list of macro indicators we follow.