Again UBS obliges:
- even after a 35% fall in iron ore prices, we actually see more downside risk;
that’s because Q3 seasonal weakness ends with a very weak Oct – the weakest
trading month, reflecting low liquidity (China has 1-week holiday) > steel
inventories lift > steel prices roll over.
- and since more-than-half of seaborne iron ore’s trade is now done on spot-tomonthly
terms (only 20%, in 2009), then this trade is more exposed to the
underlying fundamentals of the steel trade. Conclusion? At least 4 more weeks
of weak prices, in our view.
- lowest short-term price? Pick a number! When there’s a buyers’ strike, price
signals become poor representatives of the value of trade.
- but everyone still needs an actual number to think about; as a guide, US$60/t
cfr was the GFC low > a buyers’ strike could get us back to those levels very
quickly > such a move will probably be sharp and brief.
