Iron ore notches record price amid steel-market boom
The record high in the price of our biggest export, amid booming steel markets, is a boost to Australia’s budget.
The iron ore price rose has risen to an all-time high on the back of booming steel markets.
The price paid for iron ore hit $US193.85 a tonne on Tuesday, according to a daily price published by S&P Global Platts. That surpassed a record of $US193 a tonne reached in February, 2011.
The price has surged by 18 per cent in April, extending a rally that began at less than $US100 a ton in the middle of 2020, as Chinese steelmakers churn out high volumes of steel despite Beijing’s efforts to curb capacity to lower pollution.
China produced 94.0 million tonnes of crude steel in March, according to latest data from the World Steel Association. That was up from 80.3 million tonnes in March 2019, and 79.0 million in the same month last year, when the COVID-19 pandemic weighed on output.
Chinese steel production was up 16 per cent year-on-year in the first quarter of 2021.
China is by far the world’s top producer of steel, accounting for more than half of all output.
Steelmakers there have been encouraged to raise output by strong steel prices, which are also approaching a record high.
Steel stockpiles in China are falling, suggesting demand for the material domestically and for export is high. That is making mills more willing to buy iron ore at record prices.
“China’s robust steel margins are noteworthy because it shows that China’s steel demand is driving steel prices high enough to absorb elevated iron-ore and coking-coal prices,” said Commonwealth Bank of Australia, or CBA.
Mills are likely also stocking up on raw materials ahead of China’s upcoming Labour Day holiday at a time when iron-ore supplies from mines have been weaker due to a typical seasonal lull, analysts said.
“With margins strong, many steel producers appear to be making the most of the situation,” Australia and New Zealand Banking Group, or ANZ, said in a note.
Steel production has been rising elsewhere. Global output totalled 169.2 million tonnes in March, up from 156.5 million tons in the same month of 2019 and 146.9 million in the pandemic-depressed March of last year.
Strong economic data and a renewed focus on infrastructure spending globally has improved market confidence, analysts say.
China’s economy recovered at a surprisingly fast clip in March, with measures for factory and construction activity surpassing expectations. The US economic recovery is also accelerating on stimulus money and COVID-19 vaccinations.
Few analysts expect the rally in iron-ore prices to continue over the long run. Widened steel-mill margins should narrow again and drag the raw material’s price lower, ANZ said.
The end to stimulus measures or sharpened efforts to cut Chinese steel capacity could also have a significant effect on prices. “We calculate that a 1 per cent swing in crude steel production equates to roughly 15 million tonnes of iron ore, which in turn equates to a $US15-$US20/tonne price move,” said ANZ.
For now, though, there’s little indication of an imminent retreat. “Steel margins in China, which are at the highest levels since 2018, continue to suggest that current iron-ore prices are sustainable in the near term,” CBA said.
Dow Jones Newswires
