China steel produced in 2020, first year in history more than a billion tons of basic steel

The most pressing issue for iron ore prices is whether demand for steel in China has peaked.

In 2020, Chinese steel mills ignored early pandemic warnings by producing a record 1.065Bt of crude steel in the second half of the year.  With China on the pace at one point to supply as much as 1.2 billion tons of steel in 2021, the same steel mills were on fire. The Globe Steel Association estimated that this year would be the first time in history that the world produced 2Bt of crude steel.

Because of this declaration and a series of emissions regulations, Chinese officials could prevent steel prices from rising over 2020 levels during the second half of 2017. After six consecutive months of reductions, steel production on the market that counts for pricing was down by almost 20% year on year between October and November.  To put it simply, China’s steel industry will fall 20 million tons short of its 2020 targets, according to an announcement made on December 23 by the country’s MIIT, which oversees the sector.

According to MySteel, port iron ore stockpiles have also grown to a 3.5-year high of 157Mt, despite steel inventories being at year lows. However, the need for steel is also a concern. Up to 30 percent of downstream steel demand comes from China’s massively leveraged property industry, decreasing due to stricter government fiscal policies.

Steel demand, according to China’s official forecaster, would decline by 4.7% to 954 million tons in 2021 and 947 million tons in 2022, their equivalent of our office of the chief economist.  After the price of benchmark 62 percent iron ore fines rose to a multi-week high of US$126/t earlier this week, many pundits are starting to anticipate an upside.  Several industrial emitters have been placed on hold to protect China’s desire for clear skies for the show.

The iron ore market may see a shift in the mood if such limits aren’t soon lifted.  Steel mill output isn’t a sure thing, according to ANZ commodities analysts Daniel Hynes and Soni Kumari.  “We don’t anticipate that limitations imposed by the Olympic Games will be lifted altogether,” they wrote this month.  ANZ expects iron ore prices to decline to US$87/t in the third quarter, US$85/t in the fourth quarter, and US$80/t in the fifth quarter of 2023, respectively. The outlook for the other central banks is equally gloomy.

It seems that Westpac and Commbank will both miss their end-year predictions of US$85/t and US$90/t for iron ore in 2022, respectively.  Even some of the big investment firms are pessimistic. Notably, UBS expects iron ore to cost US$89 per tonne in 2022 and US$65 per tonne in the long run, whereas the Australian government expects it to cost US$100 per tonne in 2022 before dropping to US$74 per tonne in 2023.

Others are more upbeat.  Next year, minelife expert Gavin Wendt believes iron ore will be a good investment.  When iron ore prices have dropped recently, as Wendt suggests, portside stock levels may have risen due to trade.  Although steel output slowed in the second half of this year, its buyers have taken advantage of the cheaper pricing, I guess knowing that things would begin to speed up in 2022,” he added, according to Reuters.

The iron ore market is now at its lowest point since its high of US$230 per ton, therefore let’s take advantage of this opportunity to acquire iron ore at a discount.”  “Thus, even as steel output has decreased, we’ve seen record stockpile builds because I believe China is looking forward.”

Record Chinese steel output fueled by post-pandemic stimulus spending propelled prices to record levels, peaking at US$237/t on May 12 — an all-time high.  China produced 573 million tonnes of crude steel in the first half of the year, a record year for the Asian economic behemoth.  

BHP, Rio Tinto, Fortescue Metals Group, Roy Hill, and Mineral Resources are the five largest iron ore miners in Australia and paid out $59.5 billion for the year ending June 30.  In the wake of Roy Hill’s $5.6 billion dividend payout to shareholders, Gina Rinehart, Australia’s wealthiest woman, amassed a windfall of $3.92 billion from Roy Hill alone.

After almost going bankrupt as a publicly listed firm just a few years ago, Hancock Prospecting’s Atlas Iron subsidiary has suddenly created a $7.3 billion profit, a record for a private company and more significant than three of America’s four biggest banks combined.  Fenix Resources, a junior mining company, issued a $24.8 million dividend on only three months of output at its Iron Ridge mine in Western Australia’s Mid West. It was only in December that it made its millionth shipment.

Is this a viable option? No, there isn’t. In the second part of the year, the gears started turning.

In the wake of a trade battle with Australia, China’s steel production fell to its lowest level since 2017 owing to environmental restrictions and output curbs. The Chinese property market imploded as the country’s second-largest developer, Evergrande, faced a US$300 billion mountain of debt.

Through September, prices dropped to a record low of US$87/t before surging to a record high of US$120/t before the year ended.

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