Ferrous Sector Money-flow: DCE iron ore aggregated open interest reached a high at 1.18 million lots on February 21 as well as creating periodic high, following a correction of 19.26%. The open interest high last week was 1.15 million lots. Long positions need to be aware of the similar correction happen for the second time this year.
Downstream and Construction: China cement consumption from Jan—May was down 2.56% compared to last year. However May consumption was up 2.48% m-o-m according to a Mysteel survey. Infrastructure is the leading factor to boost growth on cement and steel demand and the housing market is staying resilient.
Steel Sector: Daily consumption of construction steels traded at seasonally high level above 220,000 tonnes/day, however not seeing a marginal increase. Guangdong area is suffering from flooding and heavy rain over the past two weeks and coming two weeks according to weather forecast. The impact on southern consumption might not be quick enough to be reflected on statistics, however they may react in following week.
Eastern areas are also entering a rainy season, with construction activities potentially becoming weaker on month-on-month basis according to seasonal patterns over previous years. Supply and demand in June both tend to decrease compared to April and May.
Iron Ore: The last push was due to the rumour of Vale’s adjustment on annual production. However Vale announced unchanged levels for annual production targets at 310–330 million tonnes. In addition, Itabira Mines are operating normally without and disruption. Tangshan pollution reduction efforts are also affecting 35,000 tonnes of pig iron production daily.
Australia iron ore deliveries are expected to fill any gap from Brazil exports. However iron ore port inventories decreased to four year-low targeting below 100 million tonnes in next few weeks. However structurally PBF, Newman and JMBF have sufficient inventories, BRBF and IOCJ inventories are still short because of supply issues in Brazil. Unless the structural short of iron ore is balanced, iron ore prices are at high sensitivity to external change.
The Northern steel margin is expected to narrow to 0 level because of the big shift on iron ore and slower rebound on rebar and HRC. Pig iron utilisation is also peaking at 91.38% in the previous week, both yearly high and seasonally high, estimated a pig iron production at 2.43 million tonnes daily. If steel margins keep running at break-even level, iron ore growth may slow down or leading the next correction among the ferrous complex.