Research Note From RBS Morgan
Steel markets irrational behaviour
Todays sharp price drops in the likes of RIO, BHP, FMG and AGO are likely because of recent data out of China suggesting that steel prices have plummeted late last week. We understand that some of the steel being sold into the market was at "Fire sale prices" according to reports we're getting. The short term demand macro for steel appears fragile off the back of European weakness and seems to focus on the 100Mt stockpile of ore in Chinese ports (which is normal lately).
Steel Traders noted that sales have been irrational and there's expectation that prices are unlikely to stabilise until the market is restored to reason. This could bounce in days potentially, but at the moment the mood is negative and this is being reflected in the weakness of the major iron ore players this week.
As far as we are aware, structural long term demand appears in tact. In the short term volatility will remain on the back of irrational behaviour in China's steel market.
Some points to consider:
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