- There has been an increasing bullishness in Chinese steel market sentiment recently, with rising post-Covid-19 optimism about the country’s economy for the second half of 2020, especially after the government announced an infrastructure spending boost. Although we believe that high prices are justified, they remain far from secure because, even if market participants are right that iron ore miners might struggle to meet their targets, they should still export considerably more in the second half of 2020 than in the first half of this year. And with stocks already rising amid unprecedented demand, oversupply situations may not be far away. Into 2021, we expect to see rising supply combine with slowing demand growth from China to drag prices downward eventually.
- Blast-furnace utilization rates in China dropped for the first time in six weeks but still remained elevated at 95.65% in the week ended August 14. With average utilization rates exceeding 90% since mid-April, and exceeding a record-high 94% consistently since mid-June, there remains little room for further growth, and this will have implications for raw materials demand. Should downstream industries continue to show strong performance, however, the trend may be beneficial for higher-grade iron ore.
- Higher-grade iron ore products, and pellet in particular, should see a recovery in demand, and consequently a premium over 62% Fe fines, before the end of the year, compared with recent low levels. As we approach the winter, we note that Chinese authorities have often imposed pelletizing restrictions. This, coupled with high blast-furnace utilization rates and strong demand for steel from downstream industries, should provide upside support to seaborne pellet prices, because steel mills increase their demand for seaborne pellet when there is decreased domestic pelletizing activity.
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