Has another dam in Vale ruptured? No.

The only story that sparked this crazy auction was this:

The department predicted that benchmark iron ore prices – excluding the cost of freight – would average US $ 115 per tonne in the year through June 2022 and US $ 85 per tonne. the following year as Brazil’s supply of iron ore recovers.

Ministry of Industry, that is to say. He’s done a decent job with forecasting the past few years, but he’s never moved markets like this before.

Either way, it’s too bullish this time around. The price is more likely to average $ 80 or less, and that’s only because the first trimester has averaged around $ 160. Otherwise, it would be lower.

UBS has a much better understanding of things:

China steel production continues to slow in September due to decarbonization target
China’s crude steel production fell -4% m / m in August (-13% y / y) to the lowest daily rate since March 20; Data from the CISA suggests that production is down about 3% m / m in September. We believe that the lower steel production since July is due to pressure from the central government on the provinces to significantly reduce energy consumption and intensity (after a sharp increase in 1 hour) to meet the 2021 target. reduction of ~ 3% y / y (defined in the 14th 5-year plan); other factors such as power shortage, restrictions on the winter heating season and before the Winter Olympics (February 22) are secondary factors. We believe the drop in demand for steel is due to the Evergrande problem, which triggered a slowdown in construction activity. China is now largely on track to achieve year-on-year flat steel production in 2021 (August + 6% year-on-year), assuming production is down about 10% year-on-year in September. -December (or down 2 to 3% compared to the August period). rate).

And after? National peak carbon plan and 5-year plan for the steel industry
China will soon release its national carbon reduction plan (prepared by the NDRC) and the steel industry’s 14th five-year plan. We expect these to confirm that China’s steel production has peaked and that demand for iron ore will drop significantly in 2025-2030 when the steel industry needs to cut its GHG emissions by 30 % from peak. This, combined with the growth in supply from AU / BR, scrap steel, Guinea and potentially domestic supply from China, will push iron ore prices to marginal cost (UBSe ~ $ 65 / t).

Iron Ore Signals: Slowing Demand, Increased Shipments, Increased Inventories YoY
Shipment record for 2021: UBS Evidence Lab data shows global shipments to be + 2% YTD in 2021 (> Access Dataset) with AU -1% (BHP -3%, RIO -3% & FMG + 2%), SA + 2% & Brazil + 9% (Vale + 6%). Over 7 days through September 26, shipments increased + 1% w / w to reach the highest weekly level in 2021. Slowing demand: Daily crude steel production in China appears weak in September, in decrease of about 3% m / m (10-day CISA data); in August, production fell 13% year-on-year to the lowest daily run rate in 17 months (NBS data, Figure 14). Stable inventory: the inventory of iron ore in Chinese ports is stable in weight at 130 Mt (~ 10 Mt more year-on-year); just like the steel inventory of traders. UBS Opinion: We are cautious about iron ore prices as demand weakens and supply increases (note); we have sell quotes on RIO, FMG and Vale. The iron ore majors’ spot FCF is still strong at ~ 15% but falls to

Yeah

David Llewellyn-Smith is Chief Strategist at MB Fund and MB Super. David is the Founding Editor and Editor-in-Chief of MacroBusiness and was the Founding Editor and Editor-in-Chief of Global Economics of The Diplomat, Asia-Pacific’s premier geopolitical and economic portal.

He is also a former gold trader and business commentator for the Sydney Morning Herald, The Age, ABC and Business Spectator. He is co-author of The great crash of 2008 with Ross Garnaut and was editor-in-chief of the second Garnaut’s Climate Change Review.

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