By Rhiannon Hoyle
SYDNEY--Even as steel production in the West stumbles because of
the coronavirus pandemic, iron-ore prices are surging again as
steelmakers in China keep output high to support the economic
Iron ore climbed to $133.05 a metric ton on Tuesday, notching up
its strongest price in seven years, according to data from S&P
Global Platts. The value of steel's main ingredient, one of the
world's most-traded commodities, has climbed 13% since the start of
November, taking year-to-date gains to 45%.
It has been a difficult year for steelmakers in many parts of
the world, as the Covid-19 pandemic buffeted economies, leading
mills to scale back manufacturing this spring.
In the U.S., production is gradually increasing, but remains
well below year-ago levels with steelmakers cautious about
restarting more idled furnaces because of fragile demand and a
surge in Covid-19 cases across the country.
U.S. steel output was down 15% year-over-year in October, and
had fallen 18% over the first 10 months of this year, according to
the World Steel Association.
It has been a similar story in the European Union, where steel
output is also taking time to recover.
"Rising restrictions due to the resurgent coronavirus are
creating further downside risks to steel demand" in those places,
said Daniel Hynes, senior commodity strategist at Australia and New
Zealand Banking Group Ltd.
But in China, where authorities waged an aggressive campaign in
an effort to eradicate the virus, mills have been churning out
steel at near-record rates--even with the approach of winter,
typically a weaker time for output as colder weather puts a brake
on construction in the country's northern provinces.
Chinese crude steel output totaled 92.2 million tons in October,
up 13% on the same month a year earlier. The China Iron and Steel
Association recently forecast China's annual crude-steel output
will top 1 billion tons in 2020, representing growth of up to 5% on
China's gross domestic product expanded by 4.9% in the third
quarter from a year earlier, pushing the country's economy closer
to its pre-coronavirus trajectory. The International Monetary Fund
expects China's economy to expand by 1.9% in 2020, making it the
only major economy likely to grow this year.
Fixed-asset investment--which includes manufacturing, property
and infrastructure investment, all big steel-using sectors--is
rising and a gauge of China's factory activity climbed to a
three-year peak in November, new data showed Monday.
There have been some bright spots outside of China. In October,
production climbed in Vietnam and Turkey, and edged higher in
India, according to World Steel Association data.
Still, China accounted for roughly 58% of all steel produced
globally in the first 10 months of the year, up from 54% in the
same period of 2019, the data shows.
Chinese iron-ore futures, popular among speculators there, have
also jumped sharply.
"The increase in [iron-ore] prices primarily reflects robust
demand from China's infrastructure, property and manufacturing
sectors," Commonwealth Bank of Australia analyst Vivek Dhar wrote
in a client note on Monday. A slight fall in iron-ore stocks held
at Chinese ports last week also helped, he said.
The profit margins of steel mills in China remain healthy
because of an increase in steel prices there, which bodes well for
iron ore's prospects, analysts say.
When it comes to demand, a winter slowdown is inevitable, said
Morgan Stanley. But the bank projects iron-ore prices will stay
strong headed into the new year, as demand is better than expected
for this time of year.
Market sentiment has improved, Macquarie said in a Nov. 26 note,
citing its own survey of Chinese steel mills and traders. But it
isn't just demand driving prices, said the bank.
Buyers have been concerned about availability of supplies from
Australia and Brazil, the two biggest mining hubs for the raw
In Brazil, iron-ore giant Vale SA has held back part of its
production for its own inventory, while cautioning heavy rains from
La Niña pose a threat to future production.
The biggest miners in Australia's remote Pilbara region, which
accounts for more than half of all iron ore traded by sea, have
been conducting maintenance work on their infrastructure, capping
Still, thanks to strong prices, Australia's iron-ore exports hit
a monthly record in terms of value in October. The boom in prices
for materials including iron ore gives Australia's economic
recovery an advantage compared with the rest of the world, said
Paul Xiradis, chief investment officer and head of equities at
investment fund Ausbil. Australia's economy has emerged from a
recession, growing 3.3% in the third quarter, well above
economists' expectations of roughly 2.5%, official data showed
Write to Rhiannon Hoyle at firstname.lastname@example.org
(END) Dow Jones Newswires
December 02, 2020 05:44 ET (10:44 GMT)
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