Iron Ore: More supply from CSN
Brazil’s CSN produced 8.2m tonnes of iron ore for Q1 2019, up 34% on-year and up 11% on-quarter basis.
Meanwhile, Vale’s iron ore production suffered a drop of 11% on-year to 72.9m tonnes during Q1 2019, due to Brumadinho dam rupture and rainy weather in Northern System.
Despite the decline, Vale expects to reach 400m tonnes of iron ore output within 2-3 years, depending on the restart of Brucutu mining complex.
Vale estimated that if Brucutu mine production comes online then it will reach the middle of annual output guidance of 307-332m tonnes in 2019. If not, the production guidance will reach toward the bottom track of its annual target.
Iron Ore: China increases imports from Australia
China’s iron ore imports fell 6.5% on-month, an 18 months-low to 80.77m tonnes in April, according to the country’s General Administration of Customs.
The decline was attributed to the poor weather in Brazil and dam rupture incident from Vale, which the miner was estimated to have closed around 92.8m tonnes of its 400m tonnes per year capacity right into 2020.
Despite the lower imports from Brazil, Australia’s Port Hedland shipment to China has increased by 13% on month to 34.6m tonnes in April as most of Australian miners have recovered their operation after Cyclone Veronica.
Macro: No deal is the new deal
The Chinese delegation left Washington without any concrete deal on Sunday, leaving the market with more uncertainties.
Shanghai composite index has suffered a drop of 1.21% on-day to RMB 2,903.71 on Monday, while Dow futures are expected to drop more than $294 or 1.13% before the market opened in US time.
Worst case scenario: Tariffs from both sides
US places tariffs on all China’s imports, while China retaliates with their own tariffs on US imports.
However, the latest US tariffs should have little effect on China’s steel exports as the US market is not among the top 5 export market of China, according to a data compiled by the US Department of Commerce for the year 2018.
Positive Scenario: Trade agreement reaches close to election 2020
US and China manage to reach an agreement close to Trump’s re-election presidential campaign in 2020.
The compromise manages to keep world economy afloat but postpone corporate capex spending and investment till late 2019 and early 2020.
Oil Market: Sabotage attack off Hormuz
Saudi Arabia claimed two of its oil tankers were under attacked near the Strait of Hormuz, off Iran on Monday.
The alleged ‘sabotage attack’ drew market concern over a supply disruption of seaborne oil as nearly a fifth of the global oil passed through this waterway. No one claim responsibility for the attack, amid heightened tensions between the United States and Iran over trade sanctions.
Oil Market: To cut or not to cut oil output
Meanwhile, OPEC meets later this week in Saudi Arabia to review whether to extend the oil output cut to the second half of the year.
With Brent oil prices ranging at $70-75, there is always an incentive to reverse the cut and produce more to capitalize on high prices.
However, increasing US shale production poses a threat to the OPEC as a big swing producer which may take market share away from its members.