No price today with China closed but some good material from Capital Economics to digest on Chinese steel:
Chinese steel prices have been on a roller-coaster since the start of this year, as investor sentiment on the outlook for demand waxed and waned. In this Metals Watch, we take an in-depth look at the prospects for supply and demand in the Chinese steel market and what this means for the prices of both Chinese steel and its main input, iron ore. An unusual divergence Since the start of the year, the price of Chinese steel has been volatile but has broadly continued the upward trajectory that emerged in early 2016. In contrast, the price of iron ore has slumped, breaking the historic high correlation between the two commodities. (See Chart 1.)
We think that the divergence can be explained by the fact that the Chinese steel price is being boosted by the prospect of capacity closures. Of course, lower steel production would reduce iron ore demand which must, at least in part, explain the recent weakness in iron ore prices. But we think this ignores an important aspect of the equation – the outlook for Chinese steel demand.
The full text of this article is available to MacroBusiness subscribers
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
