Iron ore and steel: Sufficient supplies

China’s steel production reached new record levels in June and exports continued to recover.

Global trade tensions emerged first in the steel markets after domestic producers came under pressure from rising Chinese exports. In 2015, China exported as much steel as the world’s second largest producer, Japan, churned out, and protectionism has been on the rise since then.

In reaction to the U.S. tariffs and starting today, the EU introduced safeguard measures, imposing tariffs of 25 percent once imports exceed the average of the past three years.

Yet, China’s steel production reached new record levels in June and exports continued to recover. Demand from the construction sector is at its seasonal peak, providing support to prices and margins. Supplies should remain sufficient and cap prices, in particular as we see the demand outlook from the infrastructure and property sectors softening rather than strengthening.

An element of uncertainty, which has crept into China’s steel market, is the ‘Blue Sky’ action plan. It is intended to control pollution, in particular from heavy industries, and could lead to renewed capacity cuts during winter. Relatively low raw materials costs are another supportive element to China’s steel mills as iron ore prices remain well below the highs reached earlier this year. Amid ample supplies, this is unlikely to change.

Exports from Australia and Brazil, the world’s biggest producers, are back on the growth path. Recent production reports from BHP Billiton, Rio Tinto and Vale point towards further growth in the months and years ahead, leaving the iron ore market well supplied and more downside to prices.

We remain cautious. China’s steel production reached new record levels in June and exports continued to rebound despite rising protectionism. As we see the demand outlook softening, supplies should remain sufficient and cap prices. Iron ore exports are back on the growth path, leaving the market well supplied and more downside to prices.

Source: Zawya / Hellenic Shipping News