Treasure Chest | Feb 21 2012
By Rudi Filapek-Vandyck
All is not well in the Chinese steel market and iron ore might become the victim of temporary less buoyant circumstances, warn commodity analysts at UBS. They have been issuing some cautionary reports this month but today's update/warning carries a firmer tone. One could draw the conclusion the analysts' confidence in a pending pull back continues to increase.
A few cliff hangers to support their increasing level of unease are:
– Usually, re-stocking by Chinese steel producers and the accompanying price increases for iron ore post Chinese New Year lasts longer, but this year it all seems but finished already
– Prices for iron ore in China are weakening, they should be rising by 5-10% if history is our guide
– It is becoming increasingly obvious (not just to UBS) that Chinese steel mills are cautious, if not concerned by the central government's continued clamp down on speculation in housing
– UBS suggests today's situation very much resembles last year's in the lead-up to a sudden 30% correction in ore prices in October
– Some industry contacts are suggesting iron ore shipments from Australia are being delayed (which, if correct, is also similar to last year pre-October)
– Iron ore prices are currently averaging some 18% below UBS's projections for calendar 2012, suggesting the risk appears to the downside for listed producers in Australia
UBS is not the only expert who has expressed caution towards iron ore, but certainly the most persistent and most outspoken we've seen in February thus far.
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