With steel inventories also still not particularly high, there is no reason to fear a capitulation in the coming months on an inventory cycle.
But I would be wary of it being one-way, bullish traffic into the end of year. With steel production likely to be way stronger than expected, you might see mills under report production as they have done in previous years to avoid government attention.
Its also inescapable that the current mix of growth is not what policy makers are after. Most of the recent pick up in activity appears to be driven by infrastructure and construction spending, which only magnifies future risks as far as many are concerned. This may generate a change in Government rhetoric coming into the end of the year, which will probably at least affect sentiment.
The destocking in August has curiously had no impact on supporting prices, with major producers crushing benchmark prices in an apparent attempt to kill small mining.
I dont think this really helps these big producers gain market share, as they are already low cost so tonnes they produce are already likely to displace high cost small miners.
Perhaps its partly driven by mine destocking, although the likes of China Coal and Shenua don't have enough tonnes to depress the market for too long.
Perhaps the aim inflicting enough pain on small producers now is to knock them out of production heading into peak winter consumption. This would leave the market shorter than it otherwise would be and would push up spot prices. This would benefit not just spot tonnes delivered but also those on index linked contracts, which have become more prevalent in recent years.
