Paper markets were firm including a good jump in rebar futures. Physical is the same with rebar average bottoming. However, the Baltic Dry capesize component reversed 3%.
What looks like a building rebound should be treated with caution. Anyone that’s been around iron ore markets for any length of time knows that volatility is very high and that these moves are weak in that context. If we were entering a steel mill restock then all of these moves would be double and triple the magnitude. This is marginal buying coupled with short covering in paper markets. In the equity market it’s over-excitement and a short squeeze.
Conditions on the ground still suck. From Reuters:
Global miners Rio Tinto and Fortescue Metals Group are making deeper cuts in prices of low-grade iron ore cargoes to China, as competition heats up in the world’s top buyer amid rising supply.
…”Since many Chinese steelmakers have cut and cancelled annual contracts with miners, that has prompted miners to lower prices to keep their customers,” said an official with asteel mill in northern China who had confirmed discounts with Australia’s Fortescue.
Rio Tinto, the world’s No. 2 iron ore miner, is offering clients with annual contracts a discount…of about 13 percent.
…”To be very honest, I don’t think this grade can be sold without a massive discount because we’ve got so many cargoes of similar grade being sold at very low prices in China,” said a trader in Shanghai.
Fortescue, the world’s No. 4 producer, has offered a 14 percent discount for July cargoes of its 56.7 percent super special fines and 8 percent for its 58.3 percent grade blend fines, compared with 12 percent and 6 percent in June.
The discounts have been widened to 15 percent and 9 percent for some customers, according to two Chinese steel mill officials with direct knowledge of the matter, with flexible terms on offer to entice customers to act quickly.
These are higher discounts even than last week. As well, the good Chinese manufacturing data yesterday is driving the rally but is actually iron ore negative. It bears out what we’ve been seeing for the last month in Chinese data, that the economy is stabilising despite the realty crash, but that means no more stimulus for realty, which absorbs roughly 50% of steel.
At this stage all evidence points to a classic short squeeze.
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