RESEARCH: Key takeaways from the latest Steel Raw Materials Market Tracker

• The recent price fall in the iron ore market signals the start of a downturn, after prices averaged at the highest level in almost a year in June.
  A combination of both supply-related events in Brazil and demand factors in China have put pressure on prices. Vale has received permit to resume mining operations in Itabira, while heavy rains in the past weeks, as well as public holidays last week in China, contributed to demand woes.
  We expect the downward iron ore price correction will continue while growth rates in Chinese pig iron production slow down. Blast furnace utilization rates stagnated last month, albeit at record-high levels, while iron ore port stocks have started to grow as mills draw less from inventories.
• In metallurgical coal and coke markets, the revival in prices has continued, but despite rising over recent weeks, the quarterly average coking coal indices and assessments we forecast in the second quarter ultimately fell harder than we predicted back in March.
  We look forward to updating our forecasts in next week’s issue with an increasingly positive view in mind but clearly much depends on how quickly steel production revives in the short term, outside of China, and crucially how seaborne coal suppliers react to any demand-related changes.
  Though we underestimated the downside that ex-China coal demand would have on prices during the last quarter, we will be cautious not to overestimate an ensuing recovery, which some market participants, wrongly in our view, doubt can even happen in the short term.
• Judging by a recent webinar we conducted on Asian ferro-alloys this week, many market participants believe the steel and raw materials’ world, outside of China, will record an “L” shaped recovery, effectively failing to recover.
  With crude steel production outside of China falling close to a third in April and over a quarter in May compared to the previous year, it is for us a very bearish attitude to think this situation can be the new normal.

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