The Chinese government is attempting to make a stand against the extreme pollution plaguing the country. One of the largest polluting industries is the steel industry through its use of coal. The march against pollution is expected to have mixed results when it comes to iron ore and steel prices.
Iron ore prices were reported today as being $81.7/dry metric ton, CFR Tianjin Port, China on 62% Fe fines. The Steel Index has iron ore down $1.8/dmt after hitting a new 52-week high yesterday at $83.5/dmt.
Steel Market Update received a note from one of our Asian trading sources who reported iron ore stocks as being 110-120 million metric tons which are at historically high levels. Our source reported high quality (high Fe) ore prices as “still jumping” but at the same time we were told, “…this is about to change.”
Of the 110-120 million metric tons of iron ore inventories approximately thirty to forty percent of that inventory is low grade ore (53%-58% Fe). The low grade ore did not move late last year due to the surge in coking coal costs which exceeded $300 per metric ton during the 4th Quarter 2016. According to our sources it takes approximately thirty percent to forty percent more coking coal when using low grade iron ore.
The result being more high grade ore being exported to China which has been pushing the prices up. Now with coking coal prices off by $100 per metric ton or greater the Chinese steel mills can use the lower Fe ore, most of which was imported during the August through September 2016 time frame. This will take the stress off of high grade ore which will result in a drop in its pricing.
China Changes Scrap Policy
The Chinese government is going out of its way to shut down induction furnace steel production which is a heavy polluting industry.
Under the new regulations it will be illegal to sell scrap to the induction-furnace mills effective March 31, 2017. The only exceptions are the electric arc furnaces producing high-alloy steels.
Chinese Government Actions Could Impact Steel Prices
As the government cracks down on old, obsolete and polluting steel mills they will affect supply. As supply shrinks the prices for steel in China will either rise or remain at high levels.
In a recent MetalMiner article, Raul de Frutos reported:
“China has previously applied stricter anti-pollution rules and supply-side reforms designed to cut capacity in the coal and steel sectors, which helped push prices up. Now that the situation is getting unbearable for citizens, China has no choice but to get tough in its self-declared “war on pollution.” The result is that we could see significant supply disruptions in China’s metal production sector, particularly in steel. I believe this will be a the new determining factor in metals/steel pricing this year and it’s a bullish one.”
John PackardRead more from John Packard
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