Steel and iron ore prices are showing no signs of bottoming yet. The US$120 per tonne floor for iron ore as implied by the cost curve has been smashed, hard.Funny enough (or perhaps not, as we heard it before), despite prices decline on pathetic demand, steel mills are not slowing down production just yet. If anything, they are still ramping up production according to FT.
And the continued increase in production despite weakening prices have got Matthew Cross and Ivan Lee at Nomura very concerned. In an earlier note, they noted that steel mills might only be delaying the inevitable destocking:
We believe rising steel production may exacerbate current problems and increase the likelihood of disorderly de-stocking and a large, involuntarily production cut, and, in our view, steel mills are probably delaying the inevitable.
The chart below shows the prices of steel and iron ore in China. As you can see, both are still, well, falling.
Meanwhile, Reuters (via FT) reports that steel mills have “either defaulted on supply contracts or deferred shipment of up to 4m tonnes of iron ore this month following the fall in prices”. Similar thing has, if one remembers, happened before.
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