Iron ore: equity vs futures

Intriguing chart and snippet from Morgan Stanley below (via ftalphaville.FT.com). This type of potential arbitrage opportunity is precisely the sort that the ArbMaker futures module currently being coded will be able to analyze:

“With iron trading at $134/t, iron equities (P+P EV/t) are trading at a mean of $1.27, or 52% below the Sept’12 level when iron was at $87/t. Whilst the equity market did not ‘buy into’ iron remaining at that low level then, the market now is not giving the companies credit for the current iron ore price. Sentiment remains weak with soft Chinese economic data and Chinese steel mill guidance of a continued negative vector in iron ore pricing. However, analyst Rachel Zhang in the 29 April Asia Metals and Mining Weekly noted China’s rebar output in March jumped 22.5% from Feb to hit a historical high of 16.47Mt. The MS commodities team observes that both mill and distributor steel inventories have started declining, and holds the view that seaborne market will remain in deficit in 2013 & ‘14 in light of supply-side issues and improved prospects for Chinese demand.”