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‘Major restocking’ for steel set to bolster iron ore bulls
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Stephen Cauchi
The Chinese steel rally driving the price of iron ore is ‘‘only starting’’, with a ‘‘major restocking event’’ about to deliver a very strong year for steel demand, Credit Suisse has said.
Iron ore made headlines last week as its price rose 16 per cent, from $US60.36 a tonne on Monday to $US70.46 on Friday – a level last seen in early 2015. It also marked an 84 per cent price rebound in Australia’s largest mineral export since it bottomed at $US38.30 in December, a low last seen in the years of the global financial crisis.
Iron ore did ease a little on the weekend, falling to $US66.33 a tonne. Provided steel demand keeps up, so too should the price of iron ore, Credit Suisse said.
‘‘Iron ore has more upside while the Chinese steel rally lasts,’’ Credit Suisse analyst Matthew Hope said. ‘‘Steel mills, revelling in rare profitability, are lifting output and seeking spot ore to supplement contracted arrivals, driving bidding for cargoes.
‘‘Metallurgical coal, manganese and scrap are sharing the strength as the ferrous complex lifts.’’
However, Mr Hope said there were ‘‘conflicting views’’ over the strength of the steel price rally. ‘‘Most commentary from analysts is dubious and some mills are also cautious,’’ he said.
But Credit Suisse was bullish, he said. ‘‘Taking the opposite view, our global steel team believes the rebound is only starting,’’ Mr Hope said. ‘‘They believe destocking occurred as deep as any [time] in the past 15 years and restocking will last four quarters.’’
Mr Hope said the rally would last until at least June and possibly until the end of the year. ‘‘Our view is that China is destocked and restocking should support the steel rally at least for the rest of the second quarter,’’ he said.
‘‘And if real demand for infrastructure follows through to absorb rising steel output, prices may be supported all year, as our global steel team believes.’’
Credit Suisse’s most recent Global Steel Update said the world was ‘‘at the start, for the first time since 2009 of a major restocking event which could last over four quarters, delivering a very strong 2017.
‘‘We think Chinese demand could surprise at 5 to 10 per cent growth in 2016, versus house forecasts of minus 2 per cent.’’
Global steel recovery outside of China ‘‘is likely to be more robust than most investors fear, given the extent of destocking in the past 19 months and protectionism in place limiting export flows’’.
The present cycle had ‘‘a restock with enough strength to see pricing momentum move higher and last for more like four quarters and not four months’’.
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