News

Analysis: China steel output key for iron ore, H2 decline may be limited

Analysis-China-steel-output-key-for-iron-ore-H2-decline-may-be-limited-4221.jpg      Analysis: China steel output key for iron ore, H2 decline may be limited


Chinese steel output in the second half of 2019 may be crucial in determining whether iron ore pricing remains close to multi-year highs or falls back, while recent historic trends could imply a limited decline for steel production, according to S&P Global Platts analysis.

Benchmark iron ore prices are expected to move lower during the second half toward marginal costs and average pricing pre Vale’s dam burst, according to investment bank and industry analysts.

BMO Capital Markets expects iron ore prices to weaken in H2, but remain above levels last year — Platts TSI IODEX 62% Fe averaged at $69.11/dmt in H2 2018 and at $91.40/dmt inH1 2019.

The potential for steel mill and iron ore sintering cuts to lower air pollution since July in Tangshan and other key industrial areas has market participants and analysts factoring in potential for lower overall iron ore demand.

At the same time, shifts in value-in-use for direct charge iron ores such as pellets and lumps, and demand for concentrates as pellet feed and in sinter to help super-charge lower quality fines may lead pricing trends to emerge and grade differentials with benchmark fines to widen or narrow.

Chinese hot metal production in H2 2018 surged 5.6% on H1 2018, while so far this year, pig iron output has risen 8.2% on H1 2018, according to World Steel Association data.

China’s H2 output has been higher than the corresponding H1 in the past three consecutive years, a period where steel industry output cuts have been mandated to clear air pollution and China increasingly imported iron ore pellets and high grade ores, along with higher quality coking coals to boost efficiency at mills up and down the coast and inland.

Hot metal, or pig iron, uses iron ore and met coke, while higher scrap usage at integrated furnaces and at dedicated EAF mills may lead crude steel numbers to crest higher.

Still, the increase in H1 hot metal output implies close to 50 million mt of additional iron ore demand over January-June this year on a 62% Fe fines basis.

A double whammy of higher Chinese pig iron output during the second half of this year on H1 levels, and an increase on H2 2018’s 395 million mt — achieved during mandated steel output cuts last year — may spell limited prospects for weaker steel operating rates pushing iron ore demand down materially.

China is becoming more technical in the approach on how it mandates cuts to steel industry plants, allowing restrictions to be lifted or loosened against performance and air quality checks.

That new approach has been seen in Tangshan already, with looser directed cuts to plants in place for August than required through July.

China’s “blue sky” approach remains key, and cuts ahead of China’s winter may limit demand, along with operations close to Beijing operated to help ensure clear weather for the60th anniversary founding of the People’s Republic of China on October 1.

Weak profitability based on prevailing cash margins at Chinese steel mills, especially for mills producing flat steel, and lower anticipated rebar demand ahead of winter impactto construction and new building starts may also hurt steel demand.

After a strong first half in China property market, growth in new starts, a key driver of steel output this year, may need more stimulus from Beijing and investment markets – which may be spurred on by a US-China trade resolution.
Source: Platts

Orther News
Member
Hi Guest | IP: 64.209.142.37
Help Desk
Name:
Ms. Thuy - Bulk
HP:
+84919875077
Skype:
Name:
Ms. Dao - Project
HP:
+84916875077
Skype:
Links