China’s Supposed 2030 Industrial Peak a Risky Proposition for Iron Ore

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Cold-rolled steel

Mining giants have wagered $120 billion on belief that steel production in China won’t peak until as late as 2030. As the price of the key steelmaking raw material continued its descent to a 5-year low today, it increasingly looks like they got it wrong. It’s a miscalculation that could have huge consequences for companies led by BHP Billiton Ltd. and Rio Tinto Group.

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“I’ve always taken the view that the miners had the best intelligence on this as large investment decisions are based on it,” Richard Knights, a mining analyst at Liberum Capital Ltd. told Bloomberg News. “But if they get it wrong by a just a small margin, that has major implications for profitability and the share price for years to come.”

Iron ore is the worst-performing commodity this year and the slowing economy has persuaded some analysts and steelmakers that peak steel is nearing in China, the world’s largest producer.

On Wednesday, November 19, the US HRC futures contract 3-month price fell by 0.2%, landing at $631.00 per short ton and making it the day’s biggest mover. The spot price of the US HRC futures contract held steady around $634.00 per short ton.

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Chinese steel prices closed flat for the day. The price of iron ore 58% fines from India hit a high price of CNY 840.00 ($137.21) and a low price of CNY 830.00 ($135.57) per dry metric ton. For the fifth day in a row, the price of Chinese HRC remained essentially flat at CNY 2,970 ($485.13) per metric ton. The price of Chinese coking coal saw essentially no change for the fifth day in a row, remaining around CNY 1,390 ($227.05) per metric ton.

For the fifth consecutive day, the steel billet cash price held flat on the LME at $465.00 per metric ton. The 3-month price of steel billet continues hovering around $455.00 per metric ton on the LME for the fifth day in a row.

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