Ferrous Sector Money-flow: The previous weekly report gave seven weeks of short-run consolidation from the end of May when seeing the open interest peak for DCE market.
However market was strong by the first half of July. Open interest indicated most of the push was due to exit of shorts and re-entry as new longs.
Last year iron ore stayed at high level for one month after peak of open interest. This year iron ore stayed at high level for 1.5 months and rebounded in slightly smaller range.
Be aware that both short cycle and mid cycle are seeing a correction or consolidation since daily iron ore is facing the some exhaustion after wave four.
Macro: China regulations imposed multiple restrictions and punishments to prevent illegal leverage and financing in financial institutions from July 9th.
China stock market responded and corrected from the high. The policy bonus again might become marginally weaker after a round of speculation on both commodities and equities.
Steel Sector: The apparent consumption of construction steel has rebounded from 4.99m tonnes to 5.34m tonnes. The consumption is in a decreasing cycle, however 1-2 weekly bounce back is supporting a very short-run price resilience.
The other indicator of construction steel moving average reached 240,000 tonnes per day, a big climb compared to 210,000 tonnes a week before.
The current risk for the long side is heavy rain and floods in China didn’t impact steel production both from survey and production statistics.
However many downstream constructions are forced to close down because of the very poor weather.
Iron Ore and other Ferrous Products: China coal imports were up 12.7% y-o-y in H1 2020 to 174m tonnes. China iron ore imports were up 9.6% in H1 2020 to 547m tonnes.
Australia has some port overhauls in July, which are expected to impact some deliveries. However port arrivals are expected to boom since Australia shipped much iron ore by the last month of the fiscal year.
If we see pig iron production down significantly from multiple year high levels, iron ore consumption will see a turn on consumption.
Physical prime coke down two rounds by 100 yuan over the past two weeks. Market still expects more rounds of correction during this month.
Scrap rebounded since arrivals were low at EAFs. However some traders expected more scraps coming to mills in late July.
Iron ore is tight in major mid-grade brands, however current domestically-produced iron ore is picking up. Billet margin is squeezed quickly and expected to reach 200 yuan over this week. The Rebar/Iron Ore ratio reached historical low again at 4.47.
Senior Researcher: Hao Pei