Despite recent production cuts, steel mill inventories remain under pressure as end-user demand has collapsed.

While the mills are lowering prices to clear inventories, the buyers' strike continues as traders await further price falls.

 

Even more severe production cuts may be expected in the short term as mills struggle to clear inventories.

 

This de-stocking is particularly severe as mills will try to work down stocks, not just to previous levels, but to even lower levels in the face of uncertain demand.

 

Over the past week, the hot rolled coil price dipped to $419/t ex-vat, down by 1.5% from last week and cold rolled coil reported at $535/t ex-vat, down by 2.3% from last week.

 

Index iron ore spot prices rallied last week for the first time in many months. The two main index providers, Platts and Metal Bulletin, both reported a small recovery. Platts' 62% fe price rose to $60.00-60.50/t cfr, while the Metal Bulletin quote hit $61.55/t, both up 5% on the week. There appears to have been a rise in the volume of orders for the first time in a while, perhaps signalling an easing of the credit squeeze, which has hit demand in China.

 

Reported stocks of iron ore remain high, but current shipping schedules suggest a major collapse in Chinese iron ore imports in November and December; Vessel line-ups suggest a 20-25% reduction in Australian and Brazilian iron ore exports in November and December from levels of a few months ago; and Indian exports are down by 80% YoY.

 

Along with the major fall in global and Chinese aluminium prices, we hear of a steep decline in aluminium raw material input cost including price drops in alumina, carbon anodes and thermal coal. As a result, we note some temporary relief on smelters' cost margins.

 

Macquarie Research

Commodities