RESEARCH: Iron ore price spike ends; coking coal price recovery begins

The takeaways from the latest edition of the Steel Raw Materials Market Tracker are ready to view.

  • Iron ore prices remained relatively stable last week, signalling an end to the price spike. And for the first time since March, at the time of the Covid-19 lock-down in Hubei, we have seen a consistent downturn in utilization rates in China. Blast furnace utilization rates dropped for a fifth consecutive week. We think this could signal that actual pig iron output may slow, lowering demand for iron ore and suggesting the upward price pressure is easing. This year, iron ore prices have been supported by stronger underlying demand from China and even less supply from Brazil. Still, we expect prices eventually to correct lower - the currently elevated prices are vulnerable to rising seaborne supplies.
  • Should iron ore prices come down from their elevated levels as we expect, and should scrap imports start to flow into China again, the price attractiveness of iron metallics and semi-finished steel would drop, cooling down China’s appetite for the products. The price attractiveness, coupled with strong downstream demand - fueled by stimulus measures in China, and, as a result, booming steel production, along with the virtually absent imports of scrap - encouraged imports of metallics and semis. This pulled international prices higher and squeezed steel spreads in the rest of the world. Unsurprisingly, many exporters prioritized China-bound sales.
  • In the coking coal market, the anticipated price recovery has begun after prices had plunged to 2016 levels. While there are concerns over China’s demand for import met coal amid increased tensions with Australia and the expected slow-down in demand growth, we anticipate the price recovery to continue. Just as strong Chinese buying had a limited impact on international coking coal prices, given the fact that China is one of the major buyers, not the single major import market for coking coal, the obstacles in importing Australia-origin coals into China should not be the key factor driving prices either. As activity recovers post-pandemic in other key consuming markets including Europe and Japan, revived demand will support prices.

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