The world iron ore price has been on a downward trend recently. China’s steel industry authorities and experts say the price drop has only just begun, as it could last until the end of the year as demand in the world’s largest consumer country will continue to fall due to the growing government. tighten steel production for environmental and other purposes.

Currently, China’s iron ore prices are at their lowest levels in months as consumption slows due to the government’s steel production controls. China International Capital Corp (CICC), one of China’s largest investment firms, in a report released on August 2 warned that as domestic steel production declines, and iron ore prices are likely to fall. further away from the level of 200 USD/ton.
The production capacity utilization rate of steelmaking blast furnaces has declined in recent days, and analysts expect weak demand to continue for some time, which will continue to affect negative effect on iron ore prices.
“Iron ore consumption in the domestic market (China) is weakening significantly … due to different perceptions of crude steel production cuts, causing iron ore prices to fluctuate sharply recently,” the analysts said. Huatai Futures analyst said. The company said that with the Chinese government implementing strict control measures, iron ore prices will no longer be supported.
Iron ore inventories at China’s 33 major seaports as of August 2 amounted to 118.64 million tons, up 0.24% from July 26.
The CICC forecasts that “The growth rate for China’s steel production will turn negative starting in the third quarter of 2021 and iron ore will also gradually fade away from the highs.”
China’s steel output surged in the first half of this year due to strong demand both at home and abroad.
In the first six months of this year, China’s crude steel output increased by 11.8% year-on-year, according to the National Development and Reform Commission (NDRC), the country’s economic policymaking body. this. The NDRC said that China’s steel exports in the first half of this year increased by 30.2% year-on-year.
Due to other environmental and policy goals, China was quick to restrict steel production. In the latest move, the State Council – China’s cabinet – announced an increase in tariffs on some steel products to cut exports, effective from Sunday (1/8).
Chinese steel industry activists also said other measures have also been taken to limit steel production.
“Cutting production is the main theme of the whole steel industry for the rest of this year, not only because of environmental goals but also because of the unsustainability of companies that produce so much steel when costs are too high. ,” a Chinese steel industry insider told the Global Times, adding that (Chinese steel) companies have been asked to “strictly follow the government’s coordination.”
Given the rapid growth of steel production in the first half of the year, the task of cutting steel production to ensure full-year production is equivalent to 2020 may be difficult, but many are expected to decline quite a bit. That could mean that China’s steel output could drop by as much as 12% year-on-year in the second half of this year, according to some analyses.

The China Iron and Steel Association on August 2 also asked steel companies to “strengthen self-discipline” further and guard against the risk of increasing costs. The agency also noted that the market is likely to return to a “stable range” for the rest of the year if supply and demand are kept in balance.
If China curtails steel production for the rest of the year, that could have a huge impact on the country’s hugely high iron ore imports, with most of it coming from Australia.
In the first six months of this year, China imported 560.71 million tons of iron ore, up 2.6% year-on-year, worth 603.2 billion yuan, according to Chinese customs data. During this period, the average price for imported iron ore reached 1,075 yuan/ton.
However, the above analysis is based on information from Chinese regulators and the country’s steel industry.

Source: VITIC / Global Times

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