Ferrous Metals

June 5, 2020

The Research Team reviews the Ferrous Metals market

 

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5 June 2020

  • With the latest update, we remain bullish on overall supply conditions but with much lower conviction. While forward supply conditions point to some temporary tightness. We believe is likely to be a short-term development. However, we are picking up higher short-term inflows into China in the short-term. This would be certainly be welcome news for end-users considering the price action lately. We continue to pick up tighter domestic mines turnaround rates which means that domestic upstream conditions in China remain tight. We pickup loosening implied days of consumption in china which would add some downward pressure on prices.
  • Our latest short-term demand view is marginally bullish. Mill margins especially rebar, continue to slide as the combination of weaker steel prices along with higher feedstock prices erode mill prices. Interestingly, flat steel product margins remain supportive. This would align with the tightening Rebar-HRC spread prices that was first highlighted in one of our earlier steel notes published in mid-may. However, despite the tightening margins, we continue to pickup uptick in steel rates which is clearly supportive of IO demand in the short-term. Our re-stocking index strengthened as steel mills continue to de-stock available material which leaves existing stockpiles at relatively low levels.
  • We remain bullish on overall macroeconomic conditions. Our FX model continue to point to strengthening conditions weakness in the dollar continue to tilt our overall stance towards the bullish case. Short-term credit conditions continue and expected to persist. This would help to keep short-medium term demand supported. The latest manufacturing data was encouraging and this would imply increase in demand for raw material e.g. iron ore as end-users meet improving demand for finished white goods from the manufacturing sector.

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