Steel China

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • Coronavirus:
    • China is emerging from COVID-19.  Its March Industry and Energy output data this week, supports that with positive yr-on-yr growth in a wide range of segments.  Remember that this is March data and China is still in the process of opening up its businesses again … however it is a reasonable start. 
    • Yes, its customer countries are still dealing with peak infections and restrictions, so a recovery in demand is lagging a potential supply recovery.  
    • Its imports of raw materials are surging, both for domestic consumption and into stockpiles (at cheap prices). 
  • Gold – Retains safe-haven status though the investment market is looking (nervously) toward several countries relaxing coronavirus restrictions and restarting industries.  
  • Base metals:  
    • Base metals markets remain more focused on the sentiment associated with collapse in global demand, both at the first-use fabricator and the end-use consumer stage.  However supply is being affected by travel and transport restrictions.  Development decisions are being deferred.  Market balances are not easy to estimate in this market.  The commentary in this week’s Copper section reasonably describes the variables and current uncertainties in assessing supply & demand.  
    • We note that base metal inventory movements on Chinese exchanges are all reductions, while those of European and North American exchanges vary.  
  • Oil markets continue re-stabilise, with Brent & WTI prices with not so large a gap.  Global and in particular USA rig counts have reduced and are expected to fall further. 
  • Steel production is often considered a proxy for the industrial capacity and health of a country’s manufacturing sector.  However while globalisation has blurred those interpretations somewhat, for many of the 64 steel producing nations, their steel output is the most timely data we often see.  
  • Investors should identify and evaluate commodities, and companies, that they plan to invest in when global economies and sectors recover.  

·         The environment is remarkably volatile with many jumping to conclusions on thinly detailed data.  

·         Analysis needs to be rigorous, and the commodity markets and companies robust.  

·         Turning points may be executed quickly, so investors need to have intended investment targets already understood.  

·         Whenever you forecast something you will be precisely wrong.  What matters is:  by how much; in which direction; and how robust your forecast really is. 

  • The sentiment associated with “we are recovering” may well see prices overtake reality from time to time.  Be aware of what fundamental values really are, and do check with of the age-old travel question … “are we there yet”.  Right now, as much as we would like to be, we are definitely not, … yet.  


*Copper  Near term outlook uncertain but long term is little changed.  If anything will get tighter. 

*Cobalt  Chinese new incentives to buy EVs now, by progressively reducing subsidies.  

*Nickel  Indonesian government has put a floor under the price of nickel ore. 

Zinc & Lead  NCZ draws investment.  IBG re-optimising Citronen.  China’s Pb smelter operating rates are up. 

Tin  Coronavirus issues restricting imports of Sn concentrate into China.  nb:  AVZ & NTU not for China (upon Aust Govt intervention).  

Aluminium  Aluminium industry is notoriously slow to respond to price signals.  The signals are not good.  

Gold  Au retains safe-haven status.  Price increased with further price increases forecast.  

*Platinum & Palladium  Creditemployment, and consumer confidence, are all working against car sales.  

*Oil  Coronavirus restrictions drove demand destruction.  Prices fell in volatile trading.  Storage issues.  

Coal  Coking and thermal prices reduced upon respective reduced demand..  

Iron Ore  Vale & RIO cut fwd guidance.  However their shipments reached yr-to-date highs this week.  

*Shipping  Iron ore supported Cape shipping this week but Panamax demand declined.  


**China – Transport: – reaction & recovery to coronavirus.  Highway traffic was hit hardest.  China is recovering, with the March data showing beginnings of growth again.  

*Baker Hughes – Rig Counts – North America:  Oil rigs cut substantially, not over yet.  

*China – Industry & Energy Output: reaction & recovery (to coronavirus) has been varied, with positive yr-on-yr growth in a wide range of segments.  

*World Steel:  Global production down yr-on-yr.  Only Turkey Iran and Vietnam had +ve growth.  Six countries have contributed to the 14% growth since June 2008. 

*USA – Durable Goods, Vehicles & Electronic products:  Durables & Vehicles down sharply. Electronics and computers relatively stable.