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.
A bubble could be brewing in steel stocks.
The pandemic brought the American steel industry to its knees last spring, forcing manufacturers to shut down production as they struggled to survive the imploding economy. But as the recovery got underway, mills were slow to resume production, and that created a massive steel shortage.
Now, the reopening of the economy is driving a steel boom so strong that some are convinced it will end in tears.
“This is going to be short-lived. It’s very appropriate to call this a bubble,” Bank of America analyst Timna Tanners told CNN Business, using the “b-word” that equity analysts from major banks typically avoid.
After bottoming out around $460 last year, U.S. benchmark hot-rolled coil steel prices are now sitting at around $1,500 a ton, a record high that is nearly triple the 20-year average.
Steel stocks are on fire. U.S. Steel, which crashed to a record low last March amid bankruptcy fears, has skyrocketed 200% in just 12 months. Nucor has spiked 76% this year alone.
While “scarcity and panic” are lifting steel prices and stocks today, Tanners predicted a painful reversal as supply catches up with what she described as unimpressive demand.
“We expect this will correct — and often when it corrects, it over-corrects,” said Tanners, a two-decade veteran of the metals industry who authored a report last week headlined “Steel stocks in a bubble.”
‘A bit frothy’
Phil Gibbs, director of metals equity research at KeyBanc Capital Markets, agreed that steel prices are at unsustainable levels.
“This would be like $170-a-barrel oil. At some point, people will say, ‘F this, I’m not going to drive, I will take the bus,’” Gibbs told CNN Business. “The correction will be very intense. It’s just a matter of when and how it happens.”
Despite soaring prices, steel demand on a high
The topic of this week:China’s steel prices spike on record raw material costs
But the demand is still on a high,partly because of the global recovery plan after the pandemic covid-19.
all the steel makers are seeking for iron ores in the market desperately.
As one of the leading valve manufacturers in China
NORTECH Engineering corporation limited,feel the big impact of this market trend.
We have face an emergency notice from foundries,most important suppliers of valve parts.
All the previous pricelist are not valid any more.
Immediate increase by CNY 1000(US$ 154) each ton for cast iron/steel castings,it means a 8% increase for steel castings and 13% increase for cast iron.
For most of the chinese valve factories with margin within 10%,it will eat the profit or even cause the lost.
Till this moment,we’ve informed our customers this situation and possibility of price increase.
We will negotiate a new price with customers when the market calms down.
We will continue to supply high quality butterfly valves,gate valves,ball valves,check valves and strainers to our customers.
Please don’t hesitate to contact us if you have demand.
Post time: May-14-2021