- In a webinar we conducted on Asian ferro alloys, our research team discussed the Chinese authorities' announcing some major infrastructure investments that will increase demand for steel and steel raw materials, including iron ore. Our research shows that the recent infrastructure investment announcements are equal to about 33 million tonnes of additional crude steel production, therefore, we have upwardly revised our iron ore demand forecast. We now expect elevated iron ore prices to linger for the rest of the year, with the benchmark price set to average above $90 per tonne in the second half of 2020. This takes into account the recent infrastructure stimulus, as well as higher-than-expected prices in previous months while Covid-19-related challenges dampened demand outside China and caused concerns over Brazilian supply.
- Our team also discussed the effects of China's infrastructure investments on the domestic rebar market during the webinar, with some 15 million tonnes of additional rebar demand forecast as a result of the new investment plan. Consequently, Chinese domestic scrap prices will likely garner some support from the planned infrastructure investment. Scrap collection and generation in China, however, should also continue to improve while business activity recover after it was stifled earlier in the year due to the Covid-19 pandemic. Higher supply will mitigate potential sharp scrap price rises and we believe price-competitiveness will be important for integrated mills when considering higher scrap intake, which will cap scrap prices that are currently at a premium over and above hot-metal production costs.
- In contrast, coking coal prices should continue to recover moderately in the coming months. Chinese demand has driven the recent price recovery in the seaborne coking coal market, however, some coal consuming markets - such as the European Union, India and Japan - have shut down so much that recovery is realistically the only option while industrial activity resumes. Moreover, there is some support from widening coke margins and a rebound in China's met coke exports. The biggest single buyer of China-origin met coke was India, with a share of 14% of the total exports, yet it remains a hot spot for the Covid-19 virus, however.
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