Informa Australia is part of the Informa Connect Division of Informa PLC
This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 3099067.
20 Feb 2020, by Informa Insights
Market sentiments towards iron ore and steel have so far proven to be mixed this decade.
Although a number of political setbacks have generated apprehension – most notably the ebb and flow of US-China trade tensions – they have been somewhat offset by improved market behaviour in early January.
However, with significant uncertainty in China – the world’s largest importer of these commodities – the outlook isn’t looking any less hazy, says Paul McTaggart of Citi.
“China data sets had been improving up until the advent of the novel Coronavirus outbreak,” he said ahead of the Global Iron Ore & Steel Forecast Conference 2020.
“But the data has been impacted by travel restrictions in the first two months of the 2020 calendar year, resulting in reduced growth estimates – from 5.8 to 5.5 percent, according to our own analysis.
“Having said that, monetary policy has been more “accommodating” since mid-2019, providing an additional stimulus, he said.
“So, while the first half of 2020 might disappoint, the second half could see China metals demand surprising, on the upside.”
Last year’s steel consumption saw a 9 percent year-on-year increase at around 940 million tonnes and demand is forecast to continue climbing, by most estimates. This will largely be driven by China’s infrastructure spend.
However, with a decline in demand from the automobile, ship-building, container-manufacturing and machinery sectors – and with China’s domestic supply on the increase – the overall growth is expected to be modest.
In addition, “Margins for China steel mills are currently ~US$75 per tonne having pulled back from $100 per tonne in the last two weeks, with steel prices falling on coronavirus uncertainty,” said McTaggart.
The big wildcard, though, for steel demand in China is property, he added.
“Citi is bearish on this front and expects housing to be down in 2020. As a result, we anticipate China steel production to be lower than in 2019. Others, however, are more optimistic.”
McTaggart says that flat steel production in China for 2020 will see a balanced iron ore market, while up steel production would see the market in deficit.
“On average, Citi is expecting iron ore to reach US$75 per tonne in the 2020 calendar year, but deliver stronger results in the second half of the year,” he said.
However, the firm is taking a significantly more bearish approach on medium term prices than other observers. Mostly because there is potential for China to open up a new iron ore province in Guinea, as it has already accomplished in Bauxite.
Longer term, there are also a number of factors the iron ore and steel markets will need to navigate, McTaggart warned.
“We’ll soon be approaching peak steel in China. Citi initially said 2019 was the peak, so we can’t be too far away now,” he said.
In addition, environmental and investor pressures for miners to report and minimise scope 3 emissions will likely have a big impact.
“Steel is a major carbon dioxide producer. And increasingly steel companies are considering new technologies – like those which enable coal-free steel production.
“It is expected they will also look towards increased EAF, rather than BOF, output. This will no doubt have financial implications for the sector – if we see a developing trend, whereby blast furnace-based steel production volumes decrease into the future.
“The most obvious impact will be in metallurgical coal – but there will also increasing demand for higher value iron ore products.”
Paul McTaggart is Director of Pan Asia Metals & Mining at Citi. Hear a more detailed account of the iron ore and steel outlook at Informa’s 23rd annual Global Iron Ore & Steel Forecast Conference – due to take place 18-19 March in Perth.
Informa Connect Australia is the nation's leading event organiser. Our events comprise of large scale exhibitions, industry conferences and highly specialised corporate training.