Steel/Metal Industry: Iron Ore and Steel Prices Climb to Record Highs
Iron ore prices have reached an all-time high, with China’s domestic steel product prices also soaring to record highs. Although the summer off-season is ahead, the uptrend in steel prices is likely to continue if relationship troubles between China and Australia linger and if China’s plans to cut steel production materialize.
Iron ore price tops US$200/ton, a record high
On May 10, China’s imported iron ore price from Australia jumped 8.7% d-d to a record-high US$228/ton (Fe61.5%, CFR). Iron ore prices have risen 44.0% this year and 33.5% this month. A combination of financial and political issues, as well as supply and demand conditions, are responsible for the increase. The World Steel Association predicted in April that global and Chinese steel consumption will climb 5.8% y-y and 3.0% y-y, respectively, in 2021. Despite the Chinese government’s mention of the need to cut steel production to reduce carbon emissions, China’s daily average crude steel output stood at 2.4mn tons (+19.3% y-y) in the last ten days of April, which is also a new high.
China recently declared an end to the Strategic Economic Dialogue with Australia, raising concerns that the frictions between the two nations would prolong. China imports about 80% of its iron ore, and its dependence on Australia (61% of imports) is another factor causing the price of iron ore to soar. Of note, China shows high self-sufficiency for coal, but coal prices are weak.
Steel prices at all-time high and to remain strong for time being
On May 10, the price of HR in Shanghai climbed 5.9% d-d to RMB6,670/ton, a record high. The nation’s average HR price also jumped 6.5% y-y to RMB6,641/ton. Steel prices rose sharply due to soaring iron ore prices and the Chinese government’s plans to reduce steel production capacity. China’s National Development and Reform Commission and the Ministry of Industry and Information Technology ordered a reduction in production capacity in areas with severe air pollution (Jing-Jin-Ji, Yangtze Delta, and Pearl River Delta) starting in June.
Chinese President Xi has claimed that China’s carbon emissions will peak out by 2030 and the nation will be carbon-neutral by 2060. In January, the Chinese government said that it would cut steel production this year to reduce carbon emissions. If the steel production cuts materialize, it will lead to a rise in steel product prices. Worsening relations between China and Australia will likely lead to higher iron ore prices, and the Chinese government’s production cut policy is expected to prolong the rise in steel prices.
Source: Business Korea