Have iron ore prices peaked?
Team Veye | 21 Dec 2020
Iron ore supply has increased over the last 10 years in response to China’s industrialization. Iron ore prices have been moving upwards on rising China imports. Although supply was expected to be strong in the current quarter, an improvement in finished steel prices and high steel production could keep the iron ore market largely supported.
Last year, it was being anticipated that Iron ore prices had peaked and will head lower as supply issues had eased and Chinese demand temporarily softened due to the yuan strength.
China makes about half of the world’s steel and imports more than 70% of the world’s seaborne iron ore. Many analysts were sceptical when Rio Tinto and BHP had predicted a few years back that China would produce 1 billion mt of crude steel by 2025-2030.
Coronavirus had put the supply chains at risk. Following the easing of government-imposed lockdowns companies have resumed operations thus increasing factory activity.
Recovery in China is expected to further fuel Iron Ore consumption. Chinese demand can remain strong as a result of infrastructure project constructions rolling on. The country is also ramping up infrastructure investment which is likely to see a strong steel demand and production gaining more momentum. Thus, the demand for iron ore is expected to remain strong.
In the next few years, there is a massive amount of new integrated steelmaking capacity planned for Southeast Asia. Majority of this being funded by Chinese companies, which could potentially benefit from Belt & Road Initiative borrowing terms.
In the meantime, established mills such as Vietnam's Hoa Phat are adding blast furnaces. Over time, the region could pick up any fall in demand for iron ore from China, Japan and South Korea.
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