2 August 2019
- We remain marginally bullish in our overall assessment of supply. Forward supply conditions continue to tighten, with lower inflows into China expected for the next 2 weeks. However, spot supply availability continues to improve as mills remain in de-stocking mode and domestic production picks up (up ~5% YoY Jan-Jun). This comes as steel mills continue to contend with the various sintering cuts enforced towards the end of July as well as renewed weakness in steel margins.
- We remain outright bearish on demand. Margins took a turn for the worse given weaker steel prices. This means that the slowdown in steel rates will likely persist. Our Domestic vs Import Arb. continues to weaken which will continue to erode some demand for seaborne ore. Similarly, our Cash and Carry Arb. weakened further which would explain pickup in storage at the ports.
- Overall, short-term macroeconomic conditions remain bearish. Manufacturing data has improved slightly but our bearish view on downstream manufacturing demand remains unchanged. We also continue to see a slowdown in construction activity, which could be explained by the continuous increase in steel inventories for the last 10 weeks. Steel inventories are higher (~+39% YoY) despite some moderation in run rates. Our proprietary currency impact index indicator points to renewed weakness as the market readjusts to the FED’s recent decision. Short-term credit conditions regained some needed momentum which provides the only positive factor in the macro section.