For any emerging bulls out there, China's top steelmakers' group has a sobering message: the global iron ore market is grossly oversupplied, demand in China is faltering and there's a severe glut of steel.
"Don't let wild, short-term price swings distract us from our analysis of the market," Li Xinchuang, deputy secretary- general of the China Iron & Steel Association (CISA), said after iron ore surged on Monday by the most on record.
"How can the rally possibly be sustained?" he asked.
Prices surged 19 per cent on Monday as Chinese policymakers signalled they're ready to bolster economic growth, boosting the outlook for steel and igniting speculation that some investors who'd bet against the market had been caught out.
And speaking of swings, shares in Rio Tinto shed 9.4 per cent BHP Billiton 8.5 per cent in London overnight as the sharp rally in commodities appeared to lose strength on China's weakest export figures in almost seven years.
The Chinese steel association's outlook for a reversal in prices chimes with a chorus of iron ore bears from Goldman Sachs Group to Citigroup that say the rally is unsustainable.
"The iron ore market remains massively oversupplied and steel consumption in China will extend declines this year," Li said. CISA represents some of the country's biggest mills including Hebei Iron & Steel and Baoshan Iron & Steel.
Steel demand in China, which contracted 5.4 per cent last year, will shrink an additional 3 per cent this year, he said. Port inventories of iron ore have expanded 13 per cent in the past year, according to Shanghai Steelhome Information Technology Co. The global seaborne glut is estimated at 45.8 million tonnes this year and 34.1 million tonnes in 2017, Morgan Stanley said in a report last month.
Source: AFR.com