Morgan Stanley: Chinese Steel Faces ‘Crisis of Confidence’

China’s steel industry is experiencing a “crisis of confidence” that will affect iron ore prices unless activity picks up after Chinese New Year, according to Morgan Stanley.

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Morgan Stanley is expecting iron ore prices to average $79 a ton this year but said its “increasingly bullish forecast” depends on an expected seasonal lift in China’s steel industry activity.

“How this steel industry responds after Chinese New Year until its summer peak is now critical for iron ore’s 2015 price outlook,” analysts including Tom Price wrote in a February 3 report.

The benchmark price for iron ore fell to fresh lows of below S63 a ton last week, around 20% below Morgan Stanley’s full-year forecast. On Thursday the price fell 0.6% to $62.85 a tonne for 62% ferrous content delivered to Qingdao China.

Morgan Stanley said China’s key steel product prices have fallen as much as 15 per cent since mid-December and are now at lows not seen since the global financial crisis.

The week’s biggest mover on the weekly Raw Steels MMI® was the US HRC futures contract spot price, which saw a 6.2% decline to $547.00 per short ton. Last week marked the fourth in a row of declining prices for the metal. US shredded scrap finished the week at $318.00 per short ton after falling 5.4%. The US HRC futures contract 3-month price fell 2.1% over the past week to $560.00 per short ton. This was the third week in a row of declining prices.

Closing at KRW 149,000 ($136.46) per metric ton on the weekly Raw Steels MMI®, Korean steel scrap finished as the week’s biggest mover with a 11.8% decline. At KRW 530,000 ($485.39) per metric ton, the week finished with no movement for Korean pig iron.

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Chinese steel prices were mixed for the week. The price of iron ore 58% fines from India hit a high price of CNY 840.00 ($134.28) and a low price of CNY 840.00 ($134.28) per dry metric ton. For the third week in a row, the price of Chinese HRC dropped, falling 1.5% to CNY 2,570 ($410.82) per metric ton. At CNY 1,080 ($172.64) per metric ton, the price of Chinese coking coal did not change since the previous week. The price of Chinese slab rose 1.3% to CNY 2,390 ($382.05) per metric ton after falling 4.8% during the previous week.

This past week, the 3-month price of steel billet kept quiet, holding at on the LME at $480.00 per metric ton. Also on the LME, the steel billet cash price traded sideways last week, hovering around $500.00 per metric ton.

Closing out the third week of declining prices, the spot price of the US HRC futures contract dropped by 6.2%, finishing at $547.00 per short ton. US shredded scrap weakened by 5.4% to land at $318.00 per short ton. The 3-month price of the US HRC futures contract fell 2.1% over the past week to $560.00 per short ton. This was the third week in a row of declining prices.

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