A bit of a quandary for iron ore overnight. Iron ore futures had, as mentioned previously entered a corrective phase within a bull move. We asked the question whether China can keep consuming iron ore at this rate and if so, for how long. Well, apparently that question is hanging a little heavier than we initially thought; the offshore futures closed 2.19% lower, having traded down to a low of USD 115.41 (3.55%) overnight.
The pullback is deep from an intraday perspective and takes the technical into a neutral phase. So is this the end? Well the 3- and 5-year seasonality charts on Bloomberg have increases between 2.4% and 5.86% for November and December. It is worth pointing out that this is a year like no other with front month price USD 46 above the 5-year average I think it is fair to say the seasonality chart is out of the window.
Down but not dead!
Capesize futures have had another positive day, having clawed back another USD 275 from last night’s close (+1.4%). Miners have taken a step back to let rates cool but now seem to be finding a floor. Futures volume is key going forward, if the futures are rallying on heavy volume then you have buyers in the market forcing it higher.
However, if this move is going up on light volume then it is just a case of the market sellers taking a step back and that has bearish implications for the market. The answer to the volume will be on the FIS LIVE App in the morning.
Word from the market-leading FIS broking team is that volume is light for the last two days suggesting a lack of sellers rather than buyers pushing it up.
Could still be in trouble, but Capes need a high-volume bull day to instill any form of confidence.
It is easy to say Panamax futures remain in range and leave it at that. The upside move yesterday failed to hold, resulting in follow through to the downside today. Is this technical? We think that news of China apparently banning imports of Australian coal has more to do with it. Rumours that power stations and steel mills have been verbally told to immediately stop using Australian product is causing nervousness and could lead to the USD 11,575 range support being broken. Looking shaky in this range. Nov futures closed 2.5% lower
Supramax futures produced a Doji stay yesterday (opened and closed at the same price signaling market indecision) but this has not stop them following the Panamax lower today. The Nov futures are down 1.6% so proving a little more resilient than the Panamax; the question for the Supramax having not moved for two days, is whether the index is going to follow Panamax if it comes under pressure?
Sentiment is everything, if the Panamax gets spooked it would be a hard slog for market bulls.
Oil had a bad day yesterday, but as we highlighted it was just coming into balance having whipped around over the Trump/COVID scare. Today is looking positive with the futures up 1.62% from yesterday’s close, suggesting the market is still looking to find balance. It is a hard argument for the bulls due to COVID-19, dwindling consumption etc., but then if it involves OPEC then it is always dangerous to be too bearish. At this point we will stick to the facts and physics. Have the futures made a higher high?
Yes, well then it is probably technically bullish until it tells us otherwise.
Have a nice evening