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Steel inventories at major Chinese steel mills rose for a second straight fortnight to 19mt in mid-February, up 25.7% compared to early February, according to data from the China Iron and Steel Association (CISA). Crude steel production at major mills rose 1.5% from early February to 2.1mt/d in mid-February. The most active contract of iron ore trading at SGX fell over 3% DoD to the lowest level in almost four months this morning amid slowing demand in the end-use industry. We believe a further boost for China’s property sector will be crucial in supporting iron ore demand going forward. The downside risk for 2024 is if the stimulus effect is weaker than expected. With the recovery path for China still bumpy, we believe iron ore will remain sensitive to Chinese policies. Prices are therefore likely to remain volatile – at least in the short term.

Meanwhile, recent data from the World Steel Association (WSA) shows that global steel production fell 1.6% YoY to 148.1mt in January, as lower output in China and Brazil offset higher production levels from India, Turkey, and Iran. Chinese steel production declined 6.9% YoY to 77.2mt in January, while output in India and Russia rose 7.3% YoY and 1.2% YoY to 12.5mt and 6.2mt respectively. Meanwhile, monthly crude steel output in the EU fell 1.8% YoY to 10.2mt, while production in North America fell 2.1% YoY to 9.2mt last month.

Data from the Shanghai Futures Exchange (ShFE) shows that weekly inventories for all base metals increased over the last week primarily due to weak consumption during the week-long holiday earlier this month. Copper weekly stocks jumped by 94,803 tonnes (+109.6% WoW) for an eighth consecutive week to 181,323 tonnes as of Friday, the highest since the week ending on 17 March 2023. Among other metals, zinc inventories rose by 55,018 tonnes (+164% WoW) for a fourth consecutive week to 88,611 tonnes (highest since the week ending on 7 April 2023). Aluminium and lead stocks increased by 65.6% WoW and 33% WoW respectively at the end of last week.

The latest positioning data from the CFTC shows that speculators trimmed their net shorts of copper by 33,502 lots to just 8,807 lots as of 20 February 2024, the least bearish bets since the start of the month. The move was driven by falling gross shorts by 22,967 lots to 72,858 lots, while gross long positions rose to the highest level in over a year. In precious metals, managed money net longs in COMEX gold increased by 17,948 lots to 64,378 lots over the last reporting week. The move higher was driven by falling gross shorts by 17,225 lots to 45,739 lots.

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