Ferrous Metals

September 3, 2020

The Research Team reviews the Ferrous Metals market

 

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3 September 2020

  • Our latest assessment of overall supply conditions remained bearish for IO prices but albeit with a weak conviction. Forward supply conditions continues to point towards further tightness in supplies in the next 2-4 weeks. This however, is not seen in the terms of immediate arrivals as they continue to show further uptick. Domestic upstream conditions in China continue to ease as turnaround rates for domestic ore production continues to improve. Our Implied Inventory DoC oscillator indicator however tighten as pickup in demand continues to absorb additional material appearing in the market.
  • Our latest views on overall demand conditions turned bullish for IO prices. Steel margins for rebar remain under pressure although of late, we note that there are signs of further improvement. Favorable FX rates have been useful in absorbing part of the raise in feedstock prices. While steel rates look to slow down marginally in the short-term, they continue to be elevated on YoY basis. Our re-stocking index continues to show further incentive to accumulate material as further drawdowns at the mill level look to re-emerge.
  • Our view on the overall macroeconomic conditions remained bearish for IO prices. Our latest expectations of short-term lending conditions point to further deceleration from the highs we see in mid-late august. However, continued weakness in the USD help to turn our FX model bullish as importing currencies continue to appreciate relatively to the dollar The latest property construction figures for July were encouraging and in fact exceeded our expectations, however our expectations remain that such growth to slow down as we head into September. However, downstream manufacturing demand remains firm and our re-stocking reading is at one of the highest since late 2017. This would go on to explain the strength in the flat product e.g. HRC margins.

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