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Domestic crude steel output hits a new high, will iron ore continue to be at a high level?

Jun 29, 2020

Recently, due to the seasonal impact of high temperature and rain, the speed of catching up in various places has slowed down, and the demand for steel has dropped significantly in the short term.


Hu Fugang, head of iron ore varieties at the iron and steel network, analyzed that the iron ore spot market will continue to operate at a high level in the short term.

 

Since April this year, my country's epidemic situation has significantly improved, the demand for iron ore has increased significantly, and prices have also been on the rise. The general index showed that as of June 26, the mine price was US$104.4/ton, up 10.36% month-on-month, and fluctuated at a high level for several consecutive days. On June 8, it rose to 106.6 US dollars, a new high for the year.

 

In early June, affected by the news of the spread of the epidemic in the mining area, the prices of the iron ore spot futures market rose sharply and hit new highs. Last week, Vale announced that the mining area was about to restart operations in early July. Although the price of the mine has dropped, it is still at a high level. Due to the relatively strong demand for ore, the volatility of production has driven prices.

 

Hu Fugang said that although Australias three major mines and Brazils ore production are increasing, transportation will take some time. According to the Australian-Pak shipping cycle, this part of the increase should be concentrated in Hong Kong in early July. So for now, resources are still tight.

 

This can also be confirmed from the low inventory of ports. Lange Steel Network data shows that as of June 24, the iron ore port inventory is 98.34 million tons, which has been declining since 2018, hitting a three-year low. At present, the inventory of the port is still in the stage of downsizing, indicating that demand continues to be strong.

 

According to the latest data from the China Iron and Steel Association, in mid-June this year, key statistics show that steel companies produced a total of 214.23 million tons of crude steel and 20.757 million tons of steel. The average daily output of crude steel is 2,142,300 tons, an increase of 77,000 tons from the same period last year, an increase of 3.73%, a record high of nearly ten years.

 

The substantial increase in crude steel output has directly driven the demand for iron ore. However, the substantial increase in crude steel output also puts tremendous pressure on inventories. According to the latest statistics from the China Steel Association, the steel stocks of key iron and steel enterprises in mid-June were 14.6194 million tons, an increase of 797,400 tons from the beginning of the month and an increase of 5.77%; an increase of 5,069,900 tons and an increase of 53.36% from the beginning of the year.

 

Just this week, the IMF released the latest "World Economic Outlook". It is expected that the global GDP growth rate in 2020 will be -4.9%, the global GDP growth rate in 2021 will be reduced by 5.4%, and Chinas economic growth rate in 2020 is expected to be 1%. It is the only country in the world's major economy that is growing.

 

As the domestic epidemic prevention and control situation continues to consolidate, the first five months of this year, my country's economic data continued to improve, which should be one of the important reasons for the record high crude steel output.

 

Hu Fugang believes that the current port stocks are still at a low point, and domestic crude steel production continues to refresh new highs, and the port has fewer tradable resources. These factors determine the recent strength of iron ore. The iron ore spot market will still be in the short term High position and strong operation.


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