Iron Ore Price Plunges On Steel Production Curb...
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China's National Development and Reform Commission said late Friday it would look again at measures to curb \"unreasonable\" iron ore prices and urged trading firms to avoid hoarding and inflating prices.
Tangshan, China's top steel production hub, said on Monday it would launch a level 2 emergency response after heavy air pollution was forecast for this week. Handan, another major steel city, implemented similar curbs on March 17.
India already imposed a 30 percent tax on exports at the end of 2011, in part to ensure supply for domestic steelmakers. Shipments will plunge to 50.2 million tons this year from 78.5 million tons in 2011, the steepest decline since at least 1994, London-based Clarkson estimates. They will drop to 48.3 million tons in 2013, according to the shipbroker. India ranks behind Australia, Brazil and South Africa in seaborne iron ore.
The collapse in iron ore prices and sinking valuations of the blue-chip miners over the last few weeks has left investors scrambling to protect further losses as analysts predict the worst may not yet be over for the bulk commodity.
UBS said it expected the iron ore market to swing into surplus in the second half of this year and for the spot price to fall below $US100 a tonne in the next few months. The broker also cut its forecast for average prices next year from $US101 a tonne to $US89 a tonne.
But with the iron ore price still well above the cost of production, some fund managers are viewing the market as an opportunity to swoop on the major players at a discounted price on the assumption they are oversold.
Over the past decade, total CO2 emissions from the iron and steel sector have risen, largely owning to increases in steel demand and the required energy for production. Substantial cuts in CO2 emissions are essential to get on track with the Net Zero Scenario.
Adopting material efficiency strategies to reduce losses and optimise steel use throughout the value chain can curb demand growth in all countries, thus helping to get the iron and steel sector get on track with the Net Zero Scenario. Material efficiency strategies include increasing steel and product manufacturing yields, light-weighting vehicles, extending building lifetimes and directly reusing steel (without melting). In the Net Zero Scenario, steel demand is around 7% lower in 2030 than in a baseline scenario that follows current trends.
With electricity, hydrogen and CCUS as three main pillars to achieve substantial emission reductions in the iron and steel sector, suitable infrastructure needs to be developed to support the deployment of these innovative technologies.
Increased participation in such initiatives can help accelerate the transition to net zero, particularly by bringing together governments and companies or steel production and demand. Additionally, given the wide range of initiatives emerging, improved coordination and setting clear objectives would be helpful to maximise their effectiveness.
The decarbonisation of steel requires the increased use of electricity, hydrogen and CCUS, all of which require not only funding, but also supporting infrastructure for transport and storage. To ensure that the deployment of near zero steel production technology is not delayed, policy makers must begin planning and developing infrastructure, including building social acceptance, fostering new interregional and international collaboration, reducing planning times and ensuring affordable access to this infrastructure.
Creating demand for near zero-emission products is especially true for steel as a globally traded product and as an industry that requires the wide deployment of innovative primary production technologies. Currently, regulatory hurdles and particularly financial challenges remain to develop and deploy these technologies at scale. Going beyond targeting the reduction of embodied emissions in general, near zero steel procurement policies, either from the public sector or private corporations, and other policies like carbon contracts for difference, can help send a strong signal to the production market and influence investment decisions by creating reliable demand signals.
This report is part of the S&P Global Platts Metals Trade Review series, where we dig through datasets and digest some of the key trends in steel, iron ore, metallurgical coal, scrap and alumina. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.
Strong iron ore prices have been touted as a key indicator of an emerging post-pandemic commodity super-cycle since reaching a nine-year high of $178.45/dmt March 4, but volatility since then provides a sneak peek into how China's emissions curbs could tilt iron ore prices off-course in the months to come.
Stepped-up production curbs in the steelmaking hub of Tangshan to improve air quality and in response to a central government target of reducing crude steel output in 2021 have divided the market outlook on price direction, as crimping steel output can potentially result in opposing outcomes.
On one hand, steel production curbs could suppress iron ore demand, causing prices to fall. Proponents of this view note the Platts Iron Ore Index or IODEX recorded its largest single-day loss on record March 9, plunging $10.55/dmt on the day, after Tangshan mills were ordered to lower production to meet level 1 red alert response procedures due to heavy pollution. The last time the level 1 red alert response was activated was in 2017.
Historically, the latter scenario has prevailed most often in China, largely due to the loose implementation and localized nature of steel production curbs. Some mills simply did not adhere to the cuts. During a spot check in March, four Tangshan mills were found operating at higher rates than allowed and falsifying records. However this time, the production curbs were subsequently made more stringent.
Rising coke prices drove the initial divergence; as the price of coke, which can remove impurities in iron ore, reached record highs, blast furnace economics started to favor higher iron content, lower-impurity ores, as their savings on coke more than offset the extra cost of higher-grade ore.
The indexes diverged again in late March, this time due to widening steel margins. As steel demand continued to recover, the curbs in Tangshan tightened supply, lifting steel prices and margins. Mills elsewhere in China reacted to these price signals by switching ore blends to higher grades to maximize output.
Some contaminants, such as alumina and silica, in iron ore need to be removed using coke during the iron-making process. The higher these contaminant levels are, the more coke is needed. Coke prices in China peaked around Lunar New Year -- as did alumina and silica price adjustments to the IODEX, as steel mills' tolerance of contaminants is inversely proportionate to the cost of coke.
China's production curbs and emission cuts favor demand for direct feeds over fines. Higher steel margins bolstered by the production curbs could encourage mills to use more high-grade materials, including direct feeds, in Q2. Direct feeds also produce less emissions, which is a focus of China's current 14th Five-Year Plan.
The steel production curbs have reduced Tangshan mills' iron ore requirements, prompting the release of excess contract volumes, including lump, into the market. Some mills in northeast and south China have also started to on-sell their contracted lump cargoes and rely more on sintering fines instead. Australian lump supply may also increase in Q2 as cyclone season passes.
The rally in iron ore may have ended as its prices have dropped by over 65 per cent since the peak witnessed in May this year on weak industrial demand, mainly in China where steel production is facing curbs. Since last week, the rates have declined by about five per cent.
The drop in iron ore imports comes on the heels of steel production declining for three straight months till September. Steel output is feared to have dipped in October too with capacity utilization rates of steel mills across China plunging to near 60 per cent.
In its note on plunging iron ore prices, FSCRIR said it was as per its expectations. Prices are expected to remain under pressure next year too. For the current year, Fitch Solutions has cut its price outlook to $155 a tonne (from $170) and to $110 for next year ($130).
ICRA said China had an unwavering resolve to achieve carbon-neutrality through sustained aggressive supply-side response. This could lead to stricter restrictions on production growth and fresh capacity addition so that the Chinese steel industry can be on track to meet its baseline emission reduction target.
In China, the Steel spot prices continued to decline since the previous week amidst bearish market sentiments. These downslope market dynamics are primarily backed by the COVID lockdown, driving export volumes to be expanded alongside a plunge in prices. The logistics issues and the shutdowns mainly impact the consumption of Steel from end-users. Steel's gradual declining demand outlook in the Chinese domestic market further compresses the producer's profit on the quotations, provoking a widened gap between the market players' expectations. Amidst that, the strict decarbonization policy of China to curb the emission of excess carbon is also affecting Chinese Steel production.
The COVID-19 outrage provoked the lockdown in Eastern Chinese cities. The sentiments are knocking on fears among the suppliers that strict COVID-19 measures will outspread to Beijing. The shutdown in production activities in Shanghai has heightened the worries over the broader disruption to economic activity among the domestic players and increased doubts about the Steel quotations. Since the COVID resurged in China, coal, iron ore, and coke prices plunged by more than 5%, 8%, and 6%, respectively.
BEIJING, March 20 (Reuters) -Dalian and Singapore iron ore futures declined on Monday after China's state planner issued another warning against speculation in the market and fresh production curbs were imposed in major Chinese steel cities. 59ce067264
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