Iron ore price holds $50 despite steel shocker

Frik Els | February 23, 2016 | 11:27 am Asia Australia China Iron Ore

The surprise rally in the price of iron ore continued on Tuesday with the Northern China benchmark import price advancing to a four-month high.

Building on a 7% jump on Monday the steelmaking raw material exchanged hands for $50.50 a tonne on Tuesday according to data supplied by The SteelIndex. Iron ore is now up a stunning 36% from near decade lows hit December 11.

Chinese steel prices pulled back on Tuesday after hitting the highest levels since September yesterday thanks to a seasonal pick-up in demand and on hopes Beijing will do more to stimulate the slowing economy.

Iron ore is dependent on the health of the world’s second largest economy more than any other commodity. China last year consumed nearly three-quarters of the seaborne iron ore supply and its steelmakers forged nearly half of the global total.

And the news on Monday was not good.

China’s steelmakers are trying to export their way out of trouble, but calls rising protectionism in North America, Europe and other parts of Asia will close this opportunity too

World Steel Association data released on Monday showed a sharper-than-expected drop in global steel output of 7.1% in January compared to last year.

Output fell in all major producing regions for the second month in a row – including in India, a country which many iron ore producers had hoped could take up some of China’s slack.

China’s steel production came as a real shocker, plunging 7.8% year on year. January’s contraction also comes on the heels of 5.2% decline in December. The China Iron and Steel Association recently reported that more than half its members didn’t turn a profit in 2015 so output cuts after years of overproduction was certainly inevitable.

Colin Richardson, senior steel price specialist for Platts, says the rise in steel prices in China since the Lunar New Year can be explained by the output decline and is unlikely to continue:

“Combined with unusually lackadaisical pre-holiday demand from distributors, this served to tighten the market. However, the headwinds afflicting China and the global economy remain, so the sustainability of the rally has to be questioned.”

China’s steelmakers are trying to export their way out of trouble, but calls for anti-dumping measures in North America (where January production fell another 9% after a 16% drop in December) and Europe and rising protectionism in other parts of Asia will close this opportunity too.