The graph below uses a simple ARIMA (autoregressive moving average) model to predict steel output. For as long as I’ve been running the graph (many years now) the model has (almost) always pointed to an upward trajectory for steel output as the base case.
Now, the base case (well, central estimate) is much flatter, much less upwardly pronounced than previous.
This matches with other macroeconomic data, such as the PMI indices, which all point to a COVID related slowdown.
And also with iron ore centric data, in which we see a clear moderation in China’s iron ore imports (a pretty clear proxy for China’s iron ore demand). There’s also the seeming increase in iron ore exports from Brazil, as they slowly recover from lost production due to a) prior disasters and b) COVID.
None of this paints a particularly rosy outlook for iron ore, and we remain underweight in our exposures.
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