Iron ore prices took a tumble on Thursday, May 30th, 2024, as worries mounted about softening demand for the key steelmaking ingredient in China. This decline comes on the heels of the Chinese government’s renewed commitment to controlling crude steel output in 2024. This policy is part of China’s ongoing efforts to reduce carbon dioxide emissions.
Iron Ore Futures Down on Dalian and Singapore Exchanges
The most-traded September iron ore contract on China’s Dalian Commodity Exchange (DCE) ended the morning session down a significant 1.92%. The price settled at 869 yuan ($119.87) per metric ton, marking its lowest point since May 16th, 2024. The sentiment wasn’t any better on the Singapore Exchange, where the benchmark July iron ore contract also experienced a decline. This contract fell 2.51% to $115.95 a ton as of 0330 GMT.
The price decrease coincides with a statement released by the Chinese government on Wednesday, May 29th, 2024. This government plan outlined Beijing’s intention to maintain its grip on steel production capacity throughout 2024. This policy aligns with China’s broader objective of reducing carbon emissions from key industries by an amount equivalent to roughly 1% of the nation’s 2023 total.
In April 2024, China’s state planner had already announced the government’s plan to continue managing crude steel output this year. These measures build upon previous efforts initiated in 2021 to limit carbon emissions by capping steel production.
Market Uncertainty Regarding Steel Output Levels
Analysts at Sinosteel Futures acknowledged the cloud of uncertainty surrounding the exact impact of these policies on steel production in 2024. Their note stated that it remains unclear whether steel output will hold steady compared to last year or be lowered. They emphasize the importance of closely monitoring further details as they emerge.
The news of China’s continued steel output control policy had mixed effects on other steelmaking ingredients traded on the DCE. Coking coal prices dipped slightly by 0.38% to 1,707.5 yuan ($235.53) per ton, while coke prices increased marginally by 0.15% to 2,344 yuan ($323.33). Steel benchmark prices on the Shanghai Futures Exchange (SHFE) also exhibited a mixed response. Rebar prices edged up slightly by 0.13% to 3,745 yuan ($516.58) per ton. Hot-rolled coil prices remained flat at 3,867 yuan ($533.41), and wire rod prices gained 0.25% to 3,982 yuan ($549.27). However, stainless steel prices dipped 0.1% to 14,670 yuan ($2,023.56).
Analysts at Hongyuan Futures offered a different perspective in their note. They suggested that the release of the government plan on Wednesday could lead to improved steel fundamentals, potentially boosting steel prices in the near future. Their reasoning is that the plan might provide more clarity and stability to the market.
Looking Ahead: Potential Impact on Global Iron Ore Market
China is the world’s largest consumer of iron ore, and its policies significantly impact global iron ore prices. The continued control on steel output in 2024 is likely to dampen demand for iron ore in the short term. This could lead to further price declines, potentially impacting iron ore producers around the world.
However, the long-term outlook for iron ore remains uncertain. China’s commitment to carbon reduction could lead to increased demand for higher-grade iron ore in the future, as it requires less energy to process. Additionally, infrastructure development projects planned by the Chinese government could also provide some support to iron ore demand.
Market participants are closely watching how China’s steel output control policy unfolds in the coming months. The level of stringency in enforcing the policy and any adjustments made throughout the year will be crucial factors in determining the ultimate impact on iron ore demand and prices.
Source: Mining.com
