Global iron ore, steel prices likely to shoot up with China demand

Beijing's proposed stimulus to slightly hit imports

With the Chinese government preparing to provide additional targeted stimulus to its infrastructure sector, industry officials in India are expecting a marginal drop in cheap Chinese steel imports. 

Global iron ore prices, however, are expected to go up, with the demand for the raw material in China expected to rise, as the country’s steel players are focusing on the domestic infrastructure sector. China is the world’s largest producer and consumer of steel. 

“There will be a drop in Chinese steel imports to India. But it won’t be sizeable, as China has already lowered overall steel exports by 8-9 per cent in the last seven months. Better realisations in the domestic market due to stimulus measures will help China focus on its domestic market,” said Sushim Banerjee, director general, Institute of Steel Development & Growth (INSDAG). 

The Chinese government stepped up stimulus measures by allocating CNY800 billion in railway construction and CNY1.80 trillion in road and waterway projects in 2019, along with issuance of special local government bonds worth CNY2.5 trillion. 

Higher Chinese construction activity in 2019 and 2020, as a result of government stimulus to the infrastructure sector, will continue to buoy steel and iron ore demand, Fitch Solutions Marco Research said on Thursday. Since the Chinese government’s provision of targeted stimulus to the infrastructure sector started in second half of 2018, implied steel consumption has already grown by 10.9 per cent y-o-y on average in January-June 2019, up from 9.2 per cent y-o-y in June-December 2018, the report said. The y-o-y growth in January-June 2018 was 7.6 per cent. 

“For India steel imports, South Korea and Japan pose a bigger threat than China, which is third in the list. Nearly 40 per cent of India’s steel imports is coming from South Korea and 20 per cent from Japan. China is only 15-18 per cent,” said Nikunj Turakhia, director, Steel Users Federation of India (SUFI). 

According to World Steel Association (WSA), world crude steel production stood at 925.1 million tonne during January-June, up by 4.9 per cent compared to 2018. In the period under review, Asia produced 660.2 million tonnes of crude steel, an increase of 7.4 per cent over the first half of 2018. Just as China is putting its act together to revive its economy, India too needs to take relevant steps to up steel demand in the domestic market, said industry officials. 

“With immediate effect, issues related to domestic auto sector need to be resolved. NBFC issue also needs to be taken care of as a lot of loan demand for auto come from retail come to NBFCs,” said a Mumbai-based trader on condition of anonymity. 

While domestic steel industry is holding on to its steel prices at present, it remains to be seen if steel producers will be able to keep domestic price stable in the ongoing dull demand environment. 

According to World Steel Organisation, China’s crude steel production for June was 87.5 million tonne, up 10 per cent from last year, while India produced 9.3 million tonne in the same period, an increase of 4 per cent year-on-year. Japan produced 8.8 million tonne of crude steel in June, down 0.4 per cent y-o-y, and South Korea’s crude steel production was 6 million tonne in June 2019, a decrease of 2.6 per cent compared to June 2018.