Rennie de Westpac sees no ‘excessive speculation’ on iron ore and steel
Iron ore prices have fallen nearly 20 percent after hitting record highs earlier this month, fueled by sustained demand for steel in China and elsewhere, and as a result, high steel prices and widening profit margins.
In a note, Fitch Solutions said it was raising its forecast for world steel prices to an average of US $ 800 per tonne, from US $ 660 per tonne due to “the persistent mismatch between supply and Requirement”.
Global steel prices are close to their highest since mid-2008. Fitch noted that steel has cost an average of US $ 883 per tonne to date; they averaged US $ 582 per tonne in 2020.
“While we expect this rally to begin to stabilize as we approach the second half of the year (Chinese prices already starting to show some weakness due to government market regulation), we do not expect any significant decline in market levels. price or collapse. This is due to sustained demand despite stable production levels. “
As for iron ore, Rennie sees no reason for a sudden drop in prices.
While in a nominal sense the inventory of iron ore ports is just below two-year highs, on a five-year average seasonal basis, it is well within historical “standards” for this period of time. the year, he said.
Mr Rennie also noted that while the supply of iron ore by sea increases based on port business models, the supply from Australia is only pushing back above four-year average levels. for this time of year and Brazil is just at four-year average levels after a very slow start to the year, in part because of La Nina.
The same goes for the production and inventory of rebar, Mr. Rennie also said “no obvious signs of hoarding”. Rebar production in April was up 12 percent year over year. “While the rebar inventory was near high levels at the start of March, it is within seasonal standards.”
Mr. Rennie concluded by saying, “The one area where I think there are signs of speculative activity that may have ‘manipulated market prices’ is in the physical steel markets. Simple measures of steel mill profitability indicate excessive gains in rebar & HRC in recent weeks with profitability at the highest of the decade. “