Ferrous Metals

March 11, 2020

The Research Team reviews the ferrous metals market

 

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11 March 2020

  • We reverted bearish in our overall assessment of overall supply conditions. We pick-up higher flows into China in the short-term which can be seen by our implied IO imports chart. However, there are early signs of tightening supply conditions (2-4 weeks) as indicated by our forward supply indicator. While the previous de-stocking phase by steel mills looks to finally abate, there is no clear evidence that they are engaging in a concerted re-stocking phase yet.
  • Our short-term demand view is bearish. Margins continue to be under pressure with the decline in steel prices. There are signs of stabilization of late as the decline of other feedstock prices e.g. coke help to cushion overall margins. With pressured margins, it is perhaps unsurprising to see steel rates continue to decline. Our domestic vs. imported arb. weakened which suggests lower preference for imported ore. However, notably our cash and carry arb narrowed, which suggests that the ongoing decline in port inventories would likely halt.
  • We are outright bearish on overall macroeconomic conditions. The latest manufacturing data was weak and in fact came in weaker than our initial expectations. Short-term liquidity slowed after a brief period of strong injections. Our FX model too pickup renewed headwinds which are at one of the lowest in over a year. This suggests renewed weakness for IO prices ahead.

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