Skillings Commentary- February 2016

SMR Commentary ‐ FEBRUARY 2016 It would be wrong to call iron in 2016 a comeback, since it has a very long way to go before it has come back up to profitable status. Yet a bull steel market through the first six weeks of the new year have made a lot of miners and manufacturers particularly happy as the metal climbed above the $40 per‐ton threshold after three months of pure free fall.

What's caused the almost‐comeback? For starters, Chinese steel mills have begun to re‐stock supply after the New Year (both theirs and ours), resulting in a 20% gain from the low that constitutes a bull market. Bad news in Brazil has impeded supplies: both the dam burst of the Billiton mine and the close of the Samarco mine have kept huge quantities of ore off of the market, driving prices skyward. Nor are the cuts over: Anglo American announced they would extract itself over the near future from the iron business, shutting down mines in South Africa.

In the long term view, however, the January performance won't be enough keep iron afloat. Vale has announced record production output, while Rio Tinto and BHP are on the verge of records themselves. What's more, steel consumption in China is dropping for the first time in three decades.