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Iron ore: still short of inventory
Data on iron ore inventory at 50 smaller steel mills in China continues to show
an ongoing destock. Following the buying activity at the start of April that
pushed prices up $20/t back to $185/t, we had expected to see inventory
ticking up by now. However, the fact that prices can push up without inventory
rising indicates just how tight supply is relative to demand.
Prices could push up near term, any mid-year weakness
will be supported at a high level
We believe another round of purchasing activity will be required soon that will
provide another short-term push-up in prices. Traders we have spoken to this
week say some of their customers are down to 7–10 days of inventory, while
the survey data suggests the average of the 50 mills is down to 28 days.
These are the kinds of levels we heard on our trip to Hebei at the end of
March (see China Commodity Call, 18 March 2011) that led us to expect a
turnaround in iron ore at that time.
3Q seasonality, the credit squeeze and power shortages all pose a threat to
demand into the second half of the year. Protecting iron ore and steel prices
from the worst of any potential downside risks is the fact that there is limited
inventory in the system. Even if mills and steel end users do adjust their
production run rates down in 3Q11, they cannot disappear from the iron ore
and steel markets for an extended period. This potential reduction in real
demand could allow iron ore to trade below the range we have seen so far
this year, but as we have reported recently, iron ore cost support seems to
have lifted significantly this year to ~$150/t – the result of the export tax and
rising rail tariffs in India. This will provide a higher level of support than when
prices turned down last year and bottomed at just below $120/t.
China 1Q production and trade review – production and
demand push ever higher
With production and trade data now available for 1Q, we can now assess
Chinese demand levels for metals in the period. With economic conditions
remaining strong, despite the dampening effects of credit tightening evident in
the quarter, YoY consumption growth remains in positive territory for the
majority of metals. Furthermore, a further shift toward greater raw material
and less metal imports is evident, reflecting both the availability of
downstream capacity and the push to add value within the country within the
metals space.
Power rationing in China starts ahead of the summer
season
Selected provinces in China are starting to suffer power rationing due to
higher prices of thermal coal and tight supply of electricity. We review the
potential impact on thermal coal demand and prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Iron ore: still short of inventory
Data on iron ore inventory at 50 smaller steel mills in China continues to show
an ongoing destock. Following the buying activity at the start of April that
pushed prices up $20/t back to $185/t, we had expected to see inventory
ticking up by now. However, the fact that prices can push up without inventory
rising indicates just how tight supply is relative to demand.
Prices could push up near term, any mid-year weakness
will be supported at a high level
We believe another round of purchasing activity will be required soon that will
provide another short-term push-up in prices. Traders we have spoken to this
week say some of their customers are down to 7–10 days of inventory, while
the survey data suggests the average of the 50 mills is down to 28 days.
These are the kinds of levels we heard on our trip to Hebei at the end of
March (see China Commodity Call, 18 March 2011) that led us to expect a
turnaround in iron ore at that time.
3Q seasonality, the credit squeeze and power shortages all pose a threat to
demand into the second half of the year. Protecting iron ore and steel prices
from the worst of any potential downside risks is the fact that there is limited
inventory in the system. Even if mills and steel end users do adjust their
production run rates down in 3Q11, they cannot disappear from the iron ore
and steel markets for an extended period. This potential reduction in real
demand could allow iron ore to trade below the range we have seen so far
this year, but as we have reported recently, iron ore cost support seems to
have lifted significantly this year to ~$150/t – the result of the export tax and
rising rail tariffs in India. This will provide a higher level of support than when
prices turned down last year and bottomed at just below $120/t.
China 1Q production and trade review – production and
demand push ever higher
With production and trade data now available for 1Q, we can now assess
Chinese demand levels for metals in the period. With economic conditions
remaining strong, despite the dampening effects of credit tightening evident in
the quarter, YoY consumption growth remains in positive territory for the
majority of metals. Furthermore, a further shift toward greater raw material
and less metal imports is evident, reflecting both the availability of
downstream capacity and the push to add value within the country within the
metals space.
Power rationing in China starts ahead of the summer
season
Selected provinces in China are starting to suffer power rationing due to
higher prices of thermal coal and tight supply of electricity. We review the
potential impact on thermal coal demand and prices.
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