Ferrous Metals

November 14, 2019

The Research Team reviews the Ferrous Metals market

 

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14 November 2019

  • Bullish on overall supply conditions. Our forward supply indicator continues to pickup tightening forward supply conditions which in itself is a  price positive development. It would be logical to expect that if such flows materializes, this should also be gradually picked up by our implied imports indicator going forward. We also picked up lower import volumes into China in the short-term (especially from week#47 to 48). This is likely to further support prices. Our spot supply indicator too tightened as mills picked up additional material. While such efforts have been tepid, they have improved from the lows we saw in week#43.
  • Our short-term view on demand is marginally bullish. Steel margins remain on the upward trend and as it stands we are back to early May levels. This has come mainly on the back on lower feedstock prices e.g. iron ore and coke. Steel rates rebounded slightly after the sharp drop in early November as a result of the spate of environmental restrictions. Our domestic vs. imported arb. continues to stay relatively firm rebounded which suggests growing marginal preference for imported against domestic ore. While our cash and carry arb continues to weaken, it looks to be stabilizing which suggests the accumulation of inventories would slowdown.
  • Our latest assessment of short-term macroeconomic conditions is bearish. Downstream manufacturing demand weakened after being bullish bias for the last two months. The latest construction data was above our earlier expectations and we are now positive on downstream construction activities. Overall currency conditions deteriorated as the weaker RMB dragged down the importing currencies’ basket. The above is further compounded by tightening short-term lending conditions which we expect to persist through week#47.

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