29 August 2019
- We are now bullish in our assessment of short-term supply. Our models continue to show tightening forward supply, as well as lower arrivals into China in the next 2 weeks. Additionally, our spot supply oscillator continue to decline which is a price positive development. However, we continue to pick up tepid restocking by end-users which should put downward pressure on prices in the short-term. We question the sustainability of such actions and expect a reversal imminently.
- We remain marginally bullish on short-term demand. Steel margins have stabilized as the lower price of raw material has helped to offset the impact of poor steel prices. We have picked up lower steel making rates. This continues to reflect ongoing efforts by end-users to curb production and bring down elevated steel inventories. Our domestic vs. imported arb. continues to strengthen which suggests preference for imported IO. However, our cash and carry arb has turned bearish which suggests the lack of drawdown in inventories will persist.
- Our short-term macroeconomic view has strengthened and we are now bullish. We expect new manufacturing numbers in the next few days which will shed more light on whether downstream manufacturing demand will recover further. Our proprietary FX model has strengthened, which in our view is be an important factor to support prices and set the stage for a potential rebound. Short-term lending picked up further which confirms our positive macro view. We expect lending to pick up further as we head into September.