19 December 2019
- We turned bearish on overall supply conditions. Previously tighter forward supply conditions continue to abate and we expect that to persist till week#1 2020. This can be further validated by the expected pickup in imports arriving into China in the short term. These are all price negative developments. Mills continue to pick up additional material which has helped to tighten our spot supply indicator further.
- Our short-term demand view has now turned bearish .Steel margins continue to come under pressure after peaking in week#48. This is inline with our expectations as highlighted within the thought section in our previous report. Steel rates remain largely sideways but continue to be above its long-term average. Our domestic vs. imported arb. weakened which suggests diminishing marginal preference for imported against domestic ore. Our cash and carry arb continues to weaken, which would mean that the recent drawdowns in port inventories are likely to slowdown or even switch to buildup.
- While overall short-term macroeconomic conditions remain supportive, however the strength has weakened. The latest construction data was disappointing as downstream activities slowed. This contrasts with improving manufacturing activities. As such, we expect the HRC-Rebar spread to expand further. Currency conditions remain firm as the weakening dollar helped to strengthen importing currencies .However, short-term lending conditions continue to tighten which we expect to persist at least till week#52.