Global iron ore prices were witnessed at USD 49/MT, CFR China on 29 Oct’15. Prices are almost at a level of 3-month low. Prices fell by USD 7/MT in a month time and are on the track to fall further. Today, prices for spot billet were down by RMB 10/MT and for shanghai rebars were USD 285/MT.
Dwindling demand and shrinking steel consumption in China have forced Chinese steel mills to cut output. Apparently, in the coming months, mills are likely to cut more steel production due to heavy output losses.
State-owned mills like Bayi Steel, a unit of Bao Steel Group, has already shutdown its production base with an annual capacity of 3 MnT. However, Hangzhou Iron & Steel and Maanshan Iron & Steel are planning to shutdown capacity by year-end.
Driving forces that will pressurize prices to move down further
1. Increase in supply of low cost iron ore will obviously force prices as there will be more influx of iron ore from major iron ore producing companies like Vale, Rio Tinto and BHP Billiton. Recently, these companies showed strong iron ore production output in their quarterly reports as well as retains over their annual production target for the year.
2. Gina Rinehart’s project Roy Hill will start its first shipment by the end of Nov’15. This would definitely create a glut and will pressurize prices to touch a level of USD 40-45/MT by Mar’16.
3. Chinese steelmakers are battling with oversupply and declining prices as steel consumption is getting down day-by-day. Also, prices for shanghai rebar touched to an all time record low due to slow demand.
4. Overall demand in China is weak as economic growth is slowed down. Mills are facing heavy losses, driving them to cut production.
5.Steel exports are in-viable from China as the government has imposed some anti-dumping and safeguard duties on steel exports, which will pressurize prices to fall further.
Market analysts anticipate there are only two ways to resolve the current situation, either to raise demand or to cut supply, and according to current economic conditions, there is less hope of improvement in demand. However, to recover the slowed economy in China, Chinese government has also taken some measures. They have reduced the interest rates on bank loan in order to recover the economical conditions.
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