Investors of Steel World are troubled by the recent volatility & lift in the prices of raw materials. Here, we flag the key drivers + give the YTD-moves some perspective…
Some perspective: Prices for steel’s raw materials – iron ore, met-coal/coke, manganese ore, molybdenum, zinc – have featured greater volatility and a sharp lift in recent months,extending their already strong YTD performances. So Asia’s steel production costs have lifted 25% since mid-2016; +50%ytd. Yes, China’s central government-sponsored, steel-intensive, probably multi-year infrastructure program is the primary demand-side price driver. But given that steel prices are underperforming the general lift in input costs (China’s local rebar/HRC prices up only 11-13% since mid-year;31-41%ytd) – there must be other price drivers afoot.
Supply shortfall, mainly: China’s 2016 steel industry renaissance has surprised steel’s raw materials producers everywhere. Iron ore’s seaborne players were probably best placed to deliver into China’s buying spree: they still have large projects to deploy (S11D; Roy Hill; Minas Rio) – but even this industry has seen prices lift almost 40%ytd. Other raw materials markets are far more vulnerable to China’s re-engagement, since their respective mining capabilities and project pipelines collapsed in recent years – in particular, met-coal/coke and manganese ore.
