Halving in 2 months, does iron ore price still have a chance to recover?

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On The Morning of September 22, just as the market resumed trading after the previous four holiday closes, iron ore futures for January 2022 on the Dalian exchange lost as much as 6 percent to 606 yuan ($93.60) a tonne, the lowest level since Nov 26.

Ending the session on September 22, prices partially recovered, up 3.7% from the previous session, to 668.5 yuan ($103.4) per ton, but investors still doubted the price increase. Whether the demand from China is still decreasing and the supply is likely to improve. On the Singapore Exchange, the October iron ore contract ended this session also up 12.9% to 105.8 USD/ton, after falling 8% in the previous session.

China – the world’s largest steel producer – is tightening steel production to reduce carbon emissions. In addition, signs of a slowdown in the country’s real estate sector, especially after the Evergrande real estate group’s risk of default, also weighed on the iron ore market, causing commodity prices to fall. This is continuously fluctuating.

Iron ore prices halved in 2 months. Photo: SCMP

In just two months, the price of iron ore has halved. Accordingly, the 62% Fe ore imported to China’s seaports (spot goods) decreased from $220/ton 8 weeks ago to $103/ton on September 17, the lowest level in 14 months.

From a “hottest” commodity among raw materials in the first months of this year, when it reached $230/ton in May, iron ore prices have lost up to 34%, becoming the least efficient commodity in This year, showing the unpredictable ups and downs of a material closely related to sensitive areas: Real estate and economic growth.

After hitting a record high of $230 earlier this year, iron ore prices turned lower as China clamped down on the steel industry, which has outdated technology and equipment and consumes a lot of energy, one of the biggest contributors to pollution in the country. China has repeatedly urged steel mills to reduce output this year to limit carbon emissions as a route to achieving carbon neutrality by 2060.

“Nothing can stop China from cutting steel production, as Beijing has a goal of improving air quality ahead of the Olympic Games,” said ANZ senior commodity strategist Daniel Hynes. winter early next year. The Chinese government is asking the provinces around Beijing to cut steel production for this purpose.”.

According to steel industry data provider Mysteel, China’s steel industry has increased production cuts since last month, aimed at reducing carbon emissions. Accordingly, the provinces of Hebei and Shandong – the country’s steel production centers – announced to have cut output by 20%.

According to the National Bureau of Statistics of China, the country’s crude steel output in August fell by 13.2% year-on-year, the third consecutive month of decline, to 83.2 million tons; Average daily output is at its lowest level since March 2020. This reflects the impact of the implementation of production restrictions at steel mills.

Steel production fell sharply while domestic demand from the real estate sector slowed but from the manufacturing sector of consumer goods, from cars to household appliances, steel pipes, boxes … all increased sharply, causing steel prices in the country to rise quite steadily, in contrast to the price of iron ore.

On September 22, the price of rebar – used in construction – traded on the Shanghai floor increased by 2.9% compared to the most recent session, to 5,800 yuan/ton, the highest since mid-month. 5, while hot rolled coil increased by 1% and stainless steel by 3.7% compared to September 17 session.

Iron ore prices fell not only because the steel industry curbed output, but also because the downturn in China’s real estate sector became more and more severe.

Likewise, signs of a slowdown in China’s real estate sector have affected iron ore prices.

The country’s real estate investment in August grew only 0.3% from a year ago – the slowest pace in 18 months and far below the 1.4% gain in July, reflecting the Financial conditions are tighter than before.

China’s new home prices also rose at the slowest pace in months as authorities try to rein in the “red-hot” property market and cooling measures are expected to limit future house price growth.

China’s property market is also struggling with problems related to the country’s second-largest property developer, Evergrande Group, which is the world’s most indebted property developer. , with more than 300 billion USD in debt and almost the possibility of default is inevitable, even coming this week.

Prospects of light and dark are intertwined

China’s iron ore demand is forecast to continue to stagnate as the country’s steel output in the second half of the year must decrease by 12% year-on-year to achieve this year’s output target by 2020.

However, the world’s iron ore suppliers are benefiting from demand in the rest of the world.

The steel industry is showing great prospects as demand remains strong in the construction and manufacturing sectors globally. Therefore, steel prices in other key markets, such as the US or Europe, remain high because of tight supply and very little steel stockpiles after a period of strong demand recovery when supply chains response is broken.

The World Steel Association forecasts that global steel demand will increase by 5.8% in 2021 and reach 1,874 million tons; In 2022, demand is expected to continue to increase by 2.7%, reaching 1,924.6 million tons. In which, in developed economies, steel demand will increase by 8.2% and 4.2% in 2021 and 2022, respectively.

The recovery of the auto manufacturing and construction industries around the world will boost steel demand. In China, steel demand is also expected to grow 3% this year but will decline 1% in 2022 due to the impact of tightening environmental regulations.

Meanwhile, in the US, the massive government spending package on rebuilding infrastructure including railways, highways and bridges will significantly boost steel demand, thereby boosting demand for ore.

Source: ndh.vn – Translated by fintel.vn