An article in the Australian Financial Review (AFR) underlines the bullish narrative accompanying the iron ore price’s performance this year.

“Chinese steel consumption has just blown consensus out of the water this year,” the report notes, citing analyst comments, adding, “The macro backdrop, in terms of China, is very strong for all commodity consumption, and steel and iron ore is doing particularly well.”

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Rising money supply

The post points to rising money supply, which moved up 10.4% year over year in August, as a market-leading indicator of further strength in demand this year and iron ore producers’ relative underperformance relative to projections.

That is particularly true for Vale, which would need to achieve a run rate of close to 400 million tons per annum for the second half of the year to achieve its earlier production guidance of between 310 million and 330 million tons as a whole after a poor, COVID-impacted first half.

Source: Australian Financial Review

Iron ore price recovery

The recovery in iron ore prices has been impressive.

Dalian iron ore has risen more than 60% this year. The Singapore SGX benchmark has gained about 50%, underpinned by China’s strong demand, Reuters reported. China continues to ramp up steel output after rolling out infrastructure-led economic stimulus measures.

Source: Australian Financial Review

Relatively robust steel prices and a lack of significant inventory build despite record-high run rates supports a story of strong demand recovery. Meanwhile, the rising iron ore price provides support for steel prices. Margins remain constrained, meaning mills have little scope of overproduction if prices were to slide in an oversupplied market.

Source: Australian Financial Review

Iron ore takes a step back

Yet, prices have eased in recent days.

Read more

Andrey Kuzmin/Adobe Stack

This morning in metals news, E.U. Trade Commissioner Cecilia Malmstrom wants the U.S. to hold off on imposing tariffs in response to the long-running Airbus-Boeing subsidy saga, iron ore prices could continue to plunge and copper prices dipped again Tuesday.

E.U. Trade Chief Seeks Deal on Aircraft Subsidies

Earlier this year, the United States Trade Representative released a preliminary list of E.U. products worth approximately $11 billion that could be imposed in retaliation against E.U. subsidies of aircraft manufacturer Airbus.

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On Friday, Politico reported the WTO ruled in the U.S.’s favor, giving it the green light to impose billions of dollars of tariffs on E.U. goods, including copper alloys.

“This case has been in litigation for 14 years, and the time has come for action. The Administration is preparing to respond immediately when the WTO issues its finding on the value of U.S. countermeasures,” U.S. Trade Representative Robert Lighthizer said in April. “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft.  When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.”

E.U. Trade Commissioner Cecilia Malmstrom, however, is hoping the U.S. will hold off on imposing the retaliatory tariffs so the two parties can reach an aircraft subsidy deal.

“Our view is that we have enough tariffs in the world as it is… The U.S. president likes to make deals so we have offered to try to make a deal to find a negotiated solution,” Malmstrom was quoted as saying by Reuters.

Iron Ore Could Continue Descent

After surging above $120 per ton this year on supply-side disruption, the price of iron ore has fallen back down to earth, sliding to around $90 per ton.

According to Indian steelmaker JSW Steel, the iron ore price could slide even further, the Business Standard reported.

Seshagiri Rao, joint managing director for JSW Steel, predicted the iron ore price could trade between $80 and $85 per ton for the rest of the year before falling to between $60 and $65 per ton next year.

Copper Slides Again

After falling in the week’s opening session, copper continued to slide Tuesday as the U.S. and China prepare to renew their ongoing trade talks.

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Three-month copper on the LME dropped 1.2% on Tuesday, falling to $5,796 per ton, Reuters reported.

This morning in metals, a major player in domestic steel announced when its full-year earnings call will drop, China looks to be giving used cars some love, and Australia’s government appears a bit bearish on iron ore in the next couple years.

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Iron Ore Price Forecast for 2018-2019

Australia’s Department of Industry, Innovation and Science noted in recent commodities report that it expects iron ore prices to drop 20% in 2018 over this past year’s level, and continue that trend into 2019, according to Reuters.

A demand slowdown in China is much to blame, according to the department’s resource and energy analyst David Thurtell, as quoted by the news agency.

China Pivots to Used Cars

Speaking of demand slowdowns, China’s consumers may also be to blame for current — and future — automotive metals demand in Asia (and globally).

Read more

The Raw Steel MMI jumped 6.5%, reaching 82 in December. This MMI sub-index remains one point above September’s reading, when steel prices were slightly higher.

Raw material prices increased this month together with Chinese steel prices and Midwest premiums, which drove the increase in this month’s Raw Steels MMI.

U.S. HRC and CRC prices. Source: MetalMiner data from MetalMiner IndX(™)

Early December prices suggest a drop in HRC, CRC and plate. Only HDG appears to have increased from November’s closing price. Steel prices have failed to move into bullish mode, similar to both industrial metals and commodities.

Chinese Prices Started December Strong 

Read more

Those not involved in the steel industry tend to look at large, integrated blast furnace steel plants as dated technology light-years from the gleaming glass and concrete operations of IT or electronics. However, steelmakers are constantly striving for technological improvements.

Benchmark Your Current Steel Price by Grade, Shape and Alloy: See How it Stacks Up

In fact, the very marginal nature of steel production in the western world means that constant innovation is a necessity for a firm’s survival. Comparisons between U.S. Steel and Nucor Corp. illustrate this point. When U.S. Steel was focused on cost reduction and rationalization at the turn of the century, Nucor was innovating and investing not just in alternative electric arc furnaces, but in direct casting and other downstream technologies. As a result, Nucor is now North America’s most successful steel company but they’re not alone in looking to technology for their future prosperity.

Continuous Casting

An interesting article in the Economist details efforts at a number of steel producers around the world to find a better alternative to the traditional blast furnace. The slab casting and re-rolling route is epitomized by the likes of U.S. Steel and the major Asian steel mills. For years, the only real challenger to this process was the electric arc furnace which enjoys the benefits of scrap as a raw material and greater flexibility and economies of scale allowing it to operate profitably on a fraction of the cost required throughout for a traditional blast furnace-based integrated steel plant.

Innovation in steelmaking is coming from novel uses of liquid metal. Source: Adobe Stock/Photollug.

One of the major attractions most EAF plants have is that they produce final product by the continuous casting route. The liquid metal is taken from the refining vessel and, for flat-rolled products, continuously cast into 80-120-mm thick slabs, which can then be further rolled to thinner gauges. Read more

As one might misquote Mark Twain, we have been here before.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

In 2016, analysts were queued up to predict the iron ore price was going to collapse only for it continue its relentless rise. The recent pull back from $90 per metric ton has brought a fresh crop of dire predictions. Yet maybe, just maybe, there is more validity this time around for caution as to future price direction. There are a number of factors, each of which individually does not signal a price reversal but collectively suggests iron ore prices later this year could be lower than they have been in the first quarter.

Why Iron Ore Prices Might Really Fall

An article in the Australian Financial Review quotes analysts saying, the strength of recent pricing is encouraging Chinese domestic production to increase. In the first half in 2016 it was averaging a 220 million mt per year run rate, but rose to 280 mmt per year in the second half of the year. At the same time, global supply continues to rise with not just increased shipments from Australia but also number three miner Vale SA expanding supply from its $14 billion S11D mine. Read more

The Federal Reserve is hinting at multiple short-term interest rate increases this year, a sign that the central bank expects the recent economic surge to continue and wants to limit the possible impact of inflation.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Minutes from the Fed’s two-day meeting Jan. 31-Feb. 1 show that the tax cuts and spending proposals floated by the Trump administration continue to loom large over the central bank’s decisions. While the Fed chose to leave its interest rates unchanged at the meeting three weeks ago, investors widely expect two to three more rate hikes this year, perhaps as early as March, as the Fed continues on its path of gradually raising interest rates to combat gathering inflation.

Yet the central bank emphasized that it would adjust the pace of rate increases in line with the economy’s performance.

Fortescue Reports $1.2 Billion Profit

Australia’s Fortescue Metals Group Ltd. reported yesterday a 383% rise in interim net profit to $1.2 billion, surpassing the $319 million in the year-earlier period on the back of a surprise surge in iron ore prices… somehow this still fell short of market expectations.

Two-Month Trial: Metal Buying Outlook

Analysts had forecast profit for the six months to Dec. 31 of about $1.5 billion, according to Thomson Reuters data.

As the new year dawns, we turn our eyes toward the metal markets of 2017. Will the bull run of 2016 continue? What will be the standout performer of the metals we track? Will New Coke finally make a comeback as Even Newer Coke? Only to re-reintroduce Coke Classic in all its aluminum-encased glory? We have predictions. Lots of them.

Steel on Wheels

That’s right, the North American steel market is picking up steam and chugging toward expanded production and renewed profitability for many of the companies we track. Contributor James May said this week that flat products will enjoy higher demand while hot-rolled coil capacity will expand thanks to a combination of new capacity going online (Big River Steel‘s plant is set to open) and the trade policies of the incoming Trump Administration.

Iron Ore Overseas

China consumes over 70% of the world’s seaborne iron ore and a strong year for the Chinese economy bolstered the steelmaking raw material from from $40 per metric ton to $70/mt in global markets last year, an increase that helped re-energize the bottom lines of mining majors Rio Tinto Group, Vale SA, BHP Billiton and Fortescue Metals Group.

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This week, Sohrab Darabshaw pointed out that that was cold comfort to smaller miners in India who are still hamstrung by high export taxes and can’t get their ore into China or other lucrative world markets. That could change soon, but MetalMiner Co-Founder Stuart Burns was even more cautious, reminding us that physical iron ore prices were influenced by a rampant futures market last year.

Source: Adobe Stock/Geargodz

“The interplay of the futures market, physical demand from steel mills, and seaborne iron ore supply has too many variables to predict 2017 and ’18 with any certainty,” he said.

Trumping Trade

While some of the markets are still murky, one thing we all agreed on this week was, once Donald Trump is installed as President of the United States, 2017 certainly won’t be boring when it comes to international trade. Read more

After more than four years of languishing, some hope’s been rekindled in India’s iron ore mining sector.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Ore production jumped 22% between April and October, according to figures released by the government. Iron ore production stood at 100 million metric tons during the resurgence, against 81 mmt during the same April to October period a year ago. What’s brought even more cheer is the news that exports, too, jumped 9 times their previous level, to 9 mmt from last April to September, as compared to 1 mmt, the same period last year.

Export Taxes

With a steep price hike in global markets aided by protectionist measures for the domestic steel industry, will India see a resurgence in iron ore exports? Not so fast.

India has plentiful iron ore stockpiled but taxes are holding up exports. Source: Adobe Stock/nikitos77.

The protectionist measures imposed by India’s government previously included an export duty tax of 30% on high-grade iron ore. Many within the mining sector are of the opinion that the export tax must go, or at the very least be reduced, to boost exports. Read more

By anyone’s reckoning, iron ore and coking coal had a stellar year in 2016. Driven by infrastructure investment and a robust construction market, Chinese imports of our iron ore could top 1 billion metric tons for the first time in 2016. Prices more than doubled in the space of 12 months and the supply-demand situation seemed to be largely in balance for much of the year.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

After topping $80 per mt in early December, prices eased back a little toward the end of the year prompting many to ask “have we seen the peak in iron ore prices?” Mills typically cut output during the quieter winter months when construction demand slows. Many steel mills have already curbed output due to chronic smog alerts across northern China.

Chinese Demand

Seasonally, it would not be unusual if iron ore prices remained subdued up to the Chinese New Year and then picked up in preparation for the peak production months of late spring and summer. But, while Chinese demand defied many expectations of a slowdown in 2016, the recent softening of both iron ore and coking coal raw material prices, and the price of some finished steel products over the last week or 10 days, has lent support to some analysts’ predictions that we could be seeing markedly lower Iron ore prices throughout this year and next. Read more