The wave of euphoria and optimism that drove prices higher in December gathered momentum in January, with the 62% index averaging $168/t. We never expected this, and we still don’t think it will last. But we’ve made the mistake before of getting too bearish too soon and given the resilience of Chinese steel production, distortions around Chinese New Year, and the fragility of seaborne supply, it’s still too soon to call a decisive turning point. But cracks are appearing. While Wood Mackenzie’s forecast for no growth in Chinese pig iron production this year is unfashionably bearish, we do sense that doubts are surfacing regarding the durability of this steel intensive growth push. More importantly, there is a limit to steelmakers’ ability to pass through such high raw material costs. When that limit is reached there’s only so much margin compression that can be absorbed before something has to give. A late January sell-off was a timely reminder that we might be approaching that limit.