Posted on 24 Jun 2022
In China, prices of iron ore and steel have plummeted. Despite hopes for economic stimulus in China in 2H22, falling steel prices and concerns over profit erosion are placing downward pressure on sector share prices.
Iron ore prices plummet; coal prices continue to fall
On Jun 20, the price of iron ore (China import/CFR/Fe61.5%) plunged 8.1% from the previous day to US$110/ton, having fallen 17.9% w-w and 31.0% from the 1H22 high of US$159.9/ton on Mar 8. The Jun 20 price marked the lowest level in six months, since Dec 15 of last year. The price of hard coking coal also continues to weaken, dipping to US$376/ton (Australian/FOB) on a 43.9% slide from the all-time high of US$670.5/ton on Mar 15.
In May, China’s cumulative floor area of new construction starts decreased 30.6% y-y, alongside continuing decline in the nation’s second- and third-tier city housing prices. While the Chinese government has eased its Covid-19 lockdowns, and there is hope for stimulus measures such as infrastructure investment, the sluggish economy and the start of the off-season may have bigger impacts on the steel market. However, we note that it is difficult to increase production further, as inventory levels are high, and daily average crude steel production has reached the levels seen in 1H21. Steel companies are planning to cut production and proceed with maintenance work to cope with profitability deterioration stemming from steel price erosion.
China’s steel distribution price decline to accelerate, affected by off-season price adjustments
Chinese steel prices have also tumbled. On Jun 20, in China’s retail market, the price of HR plunged 5.6% from the previous day, with that of CR, heavy plate, and rebar sliding 4.1%, 4.6%, and 4.9%, respectively. Compared to the 1H22 peaks in early April, price decline comes to 17.5% for HR, 12.0% for CR, 11.2% for heavy plate, and 15.3% for rebar.
In the domestic steel market, ex-factory prices for HR products for distribution by blast furnaces have remained flat in June, but the HR distribution price is trending down, slipping from W1.41mn/ton on Apr 11 to W1.25mn/ton on Jun 20. Despite likely sound 1H22 earnings, the share prices of major steel companies are reflecting concerns over falling steel prices and subsequent earnings decline.
Source:Business Korea
