16 September 2019
- We are now bearish on short-term supply, although our conviction is low. Our models continue to pick up an increase in forward supply, which along with higher Chinese imports in the next two weeks, is a price negative development. However, re-stocking efforts by steel mills have finally re-appeared which has helped to absorb additional supply in the market. This has also helped to tighten our spot supply index further. We expect re-stocking efforts to remain firm in the short term so long as margins hold up.
- Our short-term view on demand has strengthened and we are outright bullish. Steel margins continue to increase as the recent drawdown in steel inventories helps to lift steel prices. This has offset some of the higher prices for raw material. With higher margins, we also picked up an improvement in steel rates. Our domestic vs. imported arb. continues to strengthen which suggests continued preference for imported IO. Our cash and carry arb turned bullish which suggests the drawdown in inventories should persist.
- Our current assessment of short-term macroeconomic conditions remains bullish. With the recent release of manufacturing data, we see further improvements in downstream demand which would help to lift demand for IO. Overall currency conditions gained further upward momentum as importing currencies strengthened further. However, our short-term lending indicator turned bearish as the uplift driven by recent increase in credit abates.