Summary: The fourth quarter is the traditional "off-season" for China's steel market, but according to current data, the overall steel market in Q4 has presented a "brisk off-season" pattern.
The fourth quarter is the traditional "off-season" for China's steel market, but according to current data, the overall steel market in Q4 has presented a "brisk off-season" pattern.
Since November, iron ore prices have started climbing again. On November 27, the imported iron ore price stood at 837 yuan/t, up 32 yuan/t from the previous month; the average price at Qingdao Port was 862 yuan/t, up 26.5 yuan/t month on month.
Qu Xiuli, vice chairwoman and secretary-general of the China Iron and Steel Association (CISA), said on the 28th at the 16th China Steel Industry Chain Market Summit & Lange Steel Network 2020 Annual Meeting that the current iron ore price is highly unreasonable and should fall back to some extent next year under normal conditions.
"Iron ore now involves futures, capital markets and huge domestic demand, so a substantial price decline is very difficult. The current trend should be downward, returning to a normal level," Qu said.
Chen Kexin, chief analyst at Lange Steel Economic Research Center, pointed out that driven by multiple forces, China's steel and steel products production in 2021 is expected to show two major characteristics: first, import volumes will remain at a high level; second, prices are expected to continue climbing. The pandemic impact in major iron ore producers such as Brazil and India has increased uncertainty in iron ore supply.
Chen further noted that U.S. dollar depreciation was also an important reason for the sharp rise in imported iron ore prices in 2020. By late November, the dollar had depreciated by about 5%. With the U.S. economy remaining weak, fiscal deficits widening, U.S. debt rising sharply, the Federal Reserve's extremely loose monetary policy and near-zero interest rates, and especially the significant weakening of the dollar's safe-haven function, the dollar is highly likely to continue depreciating in the new year. As a result, depreciation will continue to support imported iron ore prices. This will be the most important factor influencing iron ore price fluctuations in the new year, outweighing supply and demand.
On steel prices, major steel product categories have shown a volatile upward trend since the fourth quarter. This year, steel prices first fell and then rose in a wide range, gradually exceeding year-earlier levels. In Q4, prices rose again. The industry expects the national steel price index to remain high through the end of this year, with further increases possible.
The logic behind rising steel prices is strong demand. Next year, infrastructure investment to shore up weak areas will remain an important lever for stable economic growth, while real estate investment will maintain relatively fast growth, which will further strengthen domestic steel consumption in China in 2021.
Lange Steel predicts that national steel consumption demand will continue to grow in 2021. Specifically, apparent crude steel consumption is expected to exceed 1.06 billion tonnes, an increase of more than 4%. Direct crude steel exports (converted from steel products) are expected to be about 80 million tonnes for the full year, with export levels turning from decline to growth. Combining these two aspects, China's total crude steel demand in 2021 may reach about 1.1 billion tonnes, up around 5% year on year.
Chen also pointed out that another key reason for the expected continued growth of China's steel and steel product output in 2021 is that a substantial amount of steel production capacity has been added over the years, especially advanced capacity, providing a solid foundation for a large increase in output. In 2021, some of these new capacity projects will still be put into operation, estimated at tens of millions of tonnes, and along with further improvement in capacity utilization, this will ensure new room for expansion of China's steel and steel product output.