Ferrous Sector Money-flow: DCE iron ore started to soften after open interest reached a yearly-high, indicating previous longs are taking gains. Coke became the leader of ferrous sector during previous week and early this week. DCE September iron ore total contract value was 65 billion Yuan, the peak in 2019 was 75 billion yuan. However, iron ore also created a pre-historical correction after peaking on both open interest and total contract value.
China Government Work Report and Conference: The industrial market corrected with no marginal contribution to grow economy, instead a government focus on recovery and stable strategy rather than speculation. In addition, railroad infrastructure only increased 100 billion yuan compared to the year 2019. The rest of infrastructure sectors are quiet.
Steel Sector： Daily consumption of construction steels still traded above 220,000- 230,000 tonnes level. In addition, steel destocking is better/equal to expectations, however statistics have yet to reflect the southern floods in Guangdong Province. The demand will be marginally reduced since Guangdong still faces a few weeks of rainy weather and flood according to forecasts.
Blast furnace utilisation rate is reaching theoretical high, and the turning point of pig iron production is expected to come in early June. Iron ore usage is facing a ceiling. If EAF production can’t fill the demand gap steel will become slightly short and the price potentially positive driven up.
Different types of steels have started to decrease from last Friday including rebar, flat steels and scrap. Billet price indicates physical market is meeting with some uncertainties on high price area.
Iron Ore: Mangga Cyclone confirmed a limited impact to Walcott port area from May 23-25th but with no heavy rains on mines or major iron ore export ports. Port overhauls in Brazil and Australia called an end on May 25th and recovery of deliveries is expected in June.
The market is still concerned at Brazil iron ore exports as it remains the second hardest impacted by the virus but Vale hasn’t make any adjustment to its annual production or sales target.
Iron ore’s current tight balance would keep iron ore in a bigger volatility range instead of a directional trend. Please also see following as a fundamental change road map of iron ore:
Iron ore delivery increase —> Steel mills inventory slight up —> Port inventory up —> Port physical iron ore and DCE iron ore correction —> Import profit squeezed —> Seaborne iron ore and SGX iron ore correction deeper.