Iron ore and steel: Fresh price highs
Norbert Rücker, Head Macro & Commodity Research, Julius Baer
Iron ore prices climbed to new multi-month highs lifted by strong steel prices, robust steel mill margins and bullish sentiment. Today’s release of more moderate but still solid Chinese trade data could lend further fuel to the rally confirming the overall solid economic back-drop. That said, the released July data shows a slowdown of import trends across key commodities including crude oil, coal and iron ore. The economy has been the driving force behind surging iron ore and steel prices, alongside the government’s efforts to shut polluting and inefficient mines and mills. Construction activity in China is undoubtedly strong and much more resilient than expected but it is unlikely to improve further going forward. Construction is at the seasonal peak and should soften over the coming months. Steel consumption and production is set to retreat from today’s record levels. We believe there are no shortages in steel and the iron ore market is amply supplied. Chinese port inventories are close to record levels with low-cost supplies from Australia and Brazil growing at the same time.
Iron ore and steel prices remain buoyed by strong demand and bullish sentiment. However, construction activity is set to face cyclical and seasonal headwinds. We see the iron ore market as oversupplied and do not believe that the recent rebound is sustainable.