Similar to the "APEC Blue" last November, the Chinese government is planning to have another "Parade Blue" for the Second World War commemorations this September, which in turn implies limits on steel production in Hebei Province to ensure high air quality, Macquarie Research noted.
This news is relevant because China now accounts for half of global steel production and Hebei itself is over 20% of China's production, said the research house.
While this clearly spells trouble for iron ore prices, Macquarie said the market balance is made trickier by the extremely low inventory held by mills. It thus seems to be the rush to the worst/lowest between demand and inventory that will decide the iron ore price
trajectory in 3Q.
At the moment, Macquarie continues to see further downside to iron ore prices, but volatility is set to heighten along the way.
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