Daily iron ore price update (steel slipping)

Spot iron ore prices lifted slightly in China yesterday, with steel futures hitting a one-week high but the continued decline in steel production saw a 2% drop in Dalian iron ore futures.

Meanwhile, steel output in China continues to slip:

China’s full-year crude steel output in 2021 is expected to reach 1.04 billion tonnes, falling by 2.3% from a year earlier, and in 2022, crude steel output will likely decline further to 1.017 billion tonnes, down by 2.2%, according to the latest forecast released by the China Metallurgical Industry Planning and Research Institute, a government think tank.

China has implemented supply-side reforms in the steel and coal sectors since 2016 with an aim to cut overcapacity, however, crude steel output continued rising in the past few years. In the period of 2016 – 2020, the country’s crude steel output stood at 808 million tonnes, 832 million tonnes, 928 million tonnes, 996 million tonnes and 1.065 billion tonnes, respectively, rising by 1.2%, 5.7%, 6.6%, 8.3% and 7% from the previous year, according to China’s official data.

Steel consumption is also expected to decline. According to the institute’s estimates, China’s steel product consumption is likely to reach 954 million tonnes in 2021 and 947 million tonnes in 2022, falling by 4.7% and 0.7% on year, respectively.

The momentum of China’s economic recovery, consumption and investment have all weakened, with steel demand from housing construction falling significantly, dragging on the country’s overall steel consumption, said Li Xinchuang, chief engineer of the institute.

By industries, steel demand from the constructions sector including real estate, infrastructure construction and industrial manufacturing account for nearly 60% of China’s total steel demand. Since July this year, the real estate market cooled significantly after the authorities imposed restrictions property developers’ borrowing and banks’ landing to the real estate sector.

Steel product consumption in the construction sector is expected to reach 556 million tonnes this year, falling by 4.6% from a year earlier, and the sector’s steel consumption next year will likely reach 551 million tonnes, falling by 0.9% from 2021, according to the institute.

The forecast has taken into account the facts that new construction starts in China’s real estate sector has declined and meanwhile a pickup in infrastructure investment as the local government accelerated special-purpose bond issuance in recent months is expected to provide some support to steel demand, it said.

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