As noted earlier, while European stocks and US equity markets have ignored the commodity crash in China, which in addition to iron ore plunging limit down, also saw rubber tumble 7% lower, and steel rebar, coke, coking coal plunge over 6% …
.. Axiom’s Gordon Johnson warns (as we did a month ago) that the worst is yet to come, and in fact, the “backdrop of near-record/record iron ore inventories and aggressive domestic and seaborne iron ore supply, paints a nightmarish picture for iron ore prices over the coming months.”
Here are the choice excerpts from his overnight note “Why We Feel Iron Ore Prices Are Slated For a Sharp N-Term Fall (Even From Here) & Why Iron Ore Stocks (FMG; RIO; CLF; X) Are Attractive Shorts Right Now“
SUMMING THE BELOW ANALYSIS UP: With China’s April PMIs disappointing, suggesting China’s tightening measures are beginning to take hold (i.e., demand for steel in China is now weakening), we expect steel supply in China to begin to moderate imminently; stated differently, this suggests iron ore demand is in the process of waning, which, against a backdrop of near-record/record iron ore inventories and aggressive domestic and seaborne iron ore supply, paints a nightmarish picture for iron ore prices over the coming months. On this trend, we would be adding to shorts in FMG, CLF, RIO, and X.
This post was published at Zero Hedge on May 4, 2017.