From DCE exchange data, Jan iron ore has significant money inflow over the past five trading days while HRC and flat glass have significant money outflow in comparison. According to historical rule, iron ore will potentially see a reversal in particular on and after physical delivery window.
More housing restriction strategies related to leveraging ratio landed in September, suggested by the top five housing companies. They said fixed investments on housing might suffer big pressure in the last quarter of 2020. However, land investment normally has six or more months to transfer to constructions. As a result, some housing analysts believed the H1 land investments will result in house buildings in last quarter of the year.
The blast furnace utilisation rate at 94.5% as September average according to Mysteel data, indicating the previous Tangshan production curb didn’t result in significant decrease in steel making. Apparent consumption of construction steel is matching supply, which explained the lower volatility on steel price compared to other ferrous products.
The October rebar contract has consolidated around EAF costs and tended to deepen basis to physical. Which is to say, if physical rebar is consolidated at current narrow level, rebar futures tend to correct because approaching physical rebar delivery normally needs to have 200 yuan over futures (for brand discount, transportation and other charges).
Mysteel iron ore delivery and port arrivals are overall flat during September, port stocks accumulated for three weeks, among which, mid-grade major brands also increased. At the same time, port congestion is gradually easing from early September. The ‘invisible port inventories’ now count as real inventories, iron ore port stocks expected to grow continuously.
SGX has rebounded much more than DCE since the end of May, because the two benchmark are becoming different approaching DCE delivery. DCE iron ore is ultimately close to the cheapest deliverable port iron ore, which is September Yandi fines. However SGX is still branded in PBF and Newman by seaborne value with different supply and demand factors.
The most recent push was mostly impacted by Bloomberg news report saying “Australia has a nuclear option to China”, related to iron ores which the media over-interpreted. Iron ore once again led growth of all commodities after hearing this news.
Verdict: Iron ore neutral to bearish in the short run a reversal is approaching.