Shanghai rebar futures rolled on Friday. Steel scrap will follow:

SGX iron ore puked:

Dalian too:

And coking coal:

The cause is obvious:

Average daily hot metal output among steelmakers surveyed fell for a second straight week by 0.1% on the week to about 2.39 million tons as of July 4, data from consultancy Mysteel showed.

A rally in iron ore price recently suppressing margins among s

ome steelmakers also added to market caution, analysts said.

“Some mills showed less interest in ramping up output after suffering losses. And we expect limited upside room for hot metal output ahead,” analysts at Galaxy Futures said in a note.

Hot metal output is well below last year:

Late June CISA output likewise:

We are still tracking roughly -3% year-on-year falls for steel ouput, but pig iron appears to be worse. This is the kind of pace of contraction I expect to continue for many more years.

It is roughly 50mt of iron ore demand gone every year.

The iron ore surplus is still presenting at ports:

Iron ore’s portside supply hit a more-than two-year high of 148 million tons at end-June. This is equal to around 13% of total imports in 2023 and up 27.6% from the beginning of the year, according to information provider Steelhome and China Customs.

“High stocks hinder a price rally but they are not necessarily drivers for a price slump,” said Cheng Peng, a Beijing-based analyst at Sinosteel Futures.

That is due partly to cargoes that are effectively untradeable as owners sit on their stocks hoping prices improve, said traders and analysts, some of whom estimate that such “frozen” stocks account for 10% to 15% of the total.

“Some cargoes bought at high prices were ‘locked’ and became illiquid in the spot market following price falls so far this year, as selling them at the current prices will incur loss,” said Chu Xinli, a Shanghai-based analyst at China Futures.

I’m guessing Cheng Peng is long. There’s no such thing as “frozen” inventories. If prices fall they will be “puked” inventories and prices will fall more.

This rally has overshot already but I’m hesitant to turn openly bearish before the Third Plenum disappoints.

We still have a seasonal tailwind.