The global steel market industry is experiencing an oversupply in basic metal ores and miners are definitely going to feel the nip as demands are subdued while steel production has been ramping up especially in China.
The three main ingredients in making steel are iron ore, coal and limestone. The first two of the three are considered the major earnings driver for miners over the past few decades. However, the demands of the said materials slowly diminished and the price of iron ores have skyrocketed with the only prospect for a recovery pinned at the second half on restocking assumptions. Just recently, rumours have been circulating that the iron ore market was nearing a structural surplus and will certainly be a reality in the coming year. It seems like other mining companies around the world will need to make closures with a recovery since oversupply and waning demand is not likely.
Analysts in the mining sector reckons that the steel market although hitting rock bottom will raise in prospect of a recovery in the Western Market next year, contrary to speculations that oversupply will hit the market. The market is unlikely to believe that the former speculation will actually happen since equities often rally prior to the fundamentals actually kicking in once pessimism is maxed out. This looks very distasteful for China’s relatively new government, so it is very likely that the excess of steel will stay forcing prices to plummet even further.
China’s manufacturing sectors unexpectedly reduced for the first time in nearly seven months which sent shock waves through the commodity markets. With the release of the weaker-than-expected business poise of the Chinese market, there are still a lot of growing concerns with respect to the worsening fundamentals as well as the mid-year summer slowdown period is nearly approaching. While recent short covering in the metal complex has led to some remarkable strength, many experts are pessimistic that it will most likely be short-lived.
Impact of game-changer in oil supply will linger in the US
The explosion shale oil in the US is definitely a game-changing development that North America could exploit to become a self-sufficient in its energy production and consumption. Analysts are predicting that the shale oil would displace approximately 35pc to 40pc of seaborne crude oil imports to other markets by 2020. Shale oil is basically extracted from rock formations from which it tightly packs the contents for the oil not to pass freely. With modern technology, it is now easily accessible due to advances in hydraulic fracturing and horizontal drilling.