22 July 2020
- Our latest assessment of overall supply conditions remain bearish for IO prices. Forward supply conditions are expected to ease and we are already picking up some of these improvements as actual arrivals into China in the short-term start to pick up. Previously tight domestic upstream conditions in China continue to ease as turnaround rates for domestic ore production continues to improve. Our Implied Inventory DoC oscillator indicator continues to weaken as the overall supply chain continues to accumulate more material than that is concurrently being consumed.
- Our latest views on overall demand conditions remain bearish for IO prices. While steel mill margins (especially rebar margins) show some early signs of stabilization, they remain depressed and we believe this has to pickup up further in order to have any meaningful uptick in production rates. Our latest assessment of existing steel rates however continues to show further slowdown. Our re-stocking index reverted bullish which means that we expect some renewed restocking efforts by mills.
- We believe the overall macroeconomic conditions remain bullish for IO prices. Our latest expectations of short-term lending conditions point towards the possibility that we are near the peak (week 30-31) in accommodative lending conditions. We expect this weakness to appear towards the end of July – early august. Our FX model turned bullish for IO prices as the recent weakness in the dollar helps to lift overall purchasing power of consuming countries. While the latest manufacturing data was largely encouraging, we remain bearish in the short-medium term construction demand. If our views are right, this would mean that the ongoing divergence in HRC vs Rebar prices would likely continue to widen.