Core Correlations: Iron Ore Research Weekly - September 21st, 2020

Demand

• Steel production is trending upwards in major geographies. For August, Chinese steel production was up 8.4% YoY to 94.9 million tons. China continues to be a significant proportion of global steel production (62% in July), and we forecast that for August, this will continue to be the case. Indian mills like SAIL and JSPL are 35% YoY growth in production in August. This signals that demand in India is coming back quite strongly.
• Steel mill margins are trending downwards. Cash margins were down 26 RMB/ton WoW, from 119 RMB/ton to 93 RMB/ton. If margins collapse to breakeven, iron ore may experience some near-term pressure. With the increase in liquidity and bond issuances, we see this being less likely.

Supply

• Iron ore at the ports increased 0.9 million tons to 108.1 million tons WoW. Port inventories, in terms of consumption days, are close to their historical five-year lows of 25 days due to the increase in pig iron production. Port Inventories have risen for 5 weeks in a row.