• Steel output fell 1% year on year across the world in February
  • But Chinese production rose 5.6%. The question is can China hold strong or are falling iron ore prices this week a sign of things to come?
  • Miners lift anyway to end the week

While gold’s legendary banking crisis run has grabbed the headlines this week iron ore has quietly succumbed to its worst week in a year.

Gold’s blaring shine has, like a speeding driver blinded by the setting sun on an afternoon drive, averted many investors’ gaze from the crashing forces in the steel complex.

From a tick under US$130/t last Friday, iron ore fell around 2% yesterday to ~US$117/t. They are hardly calamitous levels and still comfortably above long term averages.

But it does signal a softening of China’s rebound from Covid, which prompted steel production to lift 5.6% year on year across January and February.

“Iron ore edged lower amid weakening fundamentals. Top iron ore exporters are expected to increase their shipments in coming months as supply side disruptions ease,” ANZ economist Adelaide Timbrell said in a note.

“This comes following signs of weakening demand. Chinese mills have been lowering their selling prices while spot prices for rebar used in construction have slumped sharply.”

According to ANZ rebar fell 0.6% to 4236RMB/t, but coking coal rose marginally to US$355.30/t, so it’s not all bad news in the space.

 

World lags China as economic headwinds remain

Globally steel output fell modestly last month, according to figures from the World Steel Association, down 1% on February last year to 142.4Mt.

While China (80.1Mt), home to almost 60% of the world’s output, enjoyed a strong post-Covid bounce, latching onto the pent up demand predicted by Andrew Forrest, Mike Henry and other iron ore luminaries, other economies weren’t so buoyant.

Iran and South Korea were the only other gainers among the top-10 producers, with the US down 5.3%, Russian supplies falling 8.6%, India off 1% to 10Mt and Japan, Germany and Brazil all dropping 5% or more.

Embattled Turkiye, where inflation was so bad last year about 10 of your dollary-doos can probably buy an entire kebab shop now, suffered a major 28.9% fall in output.

In a note today analysts at Fitch say they expect global steel prices to average US$825/t. That’s above current levels of around US$770/t but below 2021’s massive highs, when they average over US$950/t.

“On the supply side, we expect limited production growth in 2023 as major steelmaking firms continue to face high input costs,” they said.

“On the demand side, we expect a recovery in Mainland China to lead global demand growth for the rest of the year. Nevertheless, subdued global demand due to weak global growth will put a cap on prices.

“Over the long term, we maintain our view for global steel prices to remain on a downward trend, and highlight the start of a paradigm shift in the steel market where ‘green’ steel produced at electric arc furnaces takes centre-stage at the expense of traditional steel produced at the blast furnace.”

 

And on the markets?

Despite the bearish week for iron ore the major producers were same, same today, with Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG) in the green and BHP (ASX:BHP) barely outside.

The materials sector lifted 0.21% this morning in a promising sign for the end of the week.

The sector, containing all the major mining houses, is down just 0.23% over the past five trading days but 4.7% for the month.

Gold miners again enjoyed a boost with LBMA PM prices surging to US$1977.95/oz as the US dollar weakened.

Bullion has a typically inverse relationship to the US dollar, rising in value when cash becomes less attractive.

Bellevue Gold (ASX:BGL), Perseus Mining (ASX:PRU) and Evolution Mining (ASX:EVN) were among the top performers, while lithium stocks Pilbara Minerals (ASX:PLS), Sayona Mining (ASX:SYA) and Core Lithium (ASX:CXO) also rebounded.

 

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