Fluctuating iron-ore prices threaten downstream production

Iron-ore inventories at ports and steel mills are low. This, coupled with high pig iron production, has caused profit margins at steel mills to decline.

Photo from CFP

Photo from CFP

By WANG Yong


In the past month, iron-ore futures have risen by over 15 percent, that’s more than 30 percent up from the low point in August this year.

During the same period, rebar was up by more than 6 percent. Other products showed overall upward trends.

In early October, ore inventories at ports and steel mills were low, coupled with high pig iron production, and iron-ore prices were around US$120 (874.73 yuan) per ton. However, at that time, the profit margin of steel mills was declining with some mills heading for losses.

An optimistic capital market expects China will continue to cut interest rates and reserve ratios. The central government plans to issue 1 trillion yuan in national debt in the fourth quarter of this year.

As State borrowing increases, the market expects high infrastructure spending and a corresponding rise in steel demand.

The rise in ore prices has led to a slight decline in pig iron production, directly raising the cost of pig iron by about 130 yuan per ton, causing profit margins of steel mills to fall.

In the fourth quarter, there is no significant room for a surge in shipments, and so low inventories in ports and steel mills will persist. Mysteel data shows that as of last week, the total iron-ore inventory of 45 ports was 113 million tons, an increase of 151,400 tons (0.1 percent) from the previous month.

Regarding downstream effects, if ore prices remain high or even rise, downstream steel demand will dry up, and mills will cut production.