The traditional off-season winter of the steel industry is approaching, and iron ore, as an upstream raw material, is unusually hot.
After opening prices higher in late October, the day of trading on November 6, the iron ore futures contract hit the highest point since this year 938 yuan/ton, a new high since March this year, and has risen by more than 10% in nearly two weeks. In the morning of November 9, the main iron ore contract rose 2% during the day, once reaching 941 yuan/ton.
Recently, macro sentiment has returned to dominate the market, especially after the approval of trillion-dollar sovereign bonds, and the market is expected to be stronger for Chinese iron ore demand, supporting iron ore prices to climb steadily. The reason why iron ore can maintain a high level is essentially because the demand side is strong enough.
Demand remains strong
From January to September, China’s cumulative iron ore imports of 877 million tons, an increase of 53.58 million tons, an increase of 6.5%, of which 101.184 million tons were imported in September, an increase of 1.5%, exceeding the level of tons for two consecutive months. The supply of iron ore from mainstream mines remained high in October, with shipments from the four major mines increasing by more than 3 million tons year-on-year. According to the seasonal law of previous years, it is expected that the overall shipment in the fourth quarter will show a shock recovery trend.
Despite the rise in iron ore prices, global iron ore giants remain optimistic about demand in the Chinese market
“Chinese demand for our products has been particularly strong in the last decade or two, but I believe it will continue,” Dino Otranto of FMG, one of the world’s largest iron ore producers, said in an interview yesterday.
Separately, global iron ore giant Vale of Brazil said it remained optimistic about demand in its main market, China, and was confident in Brazil’s ability to export higher quality iron ore. Vale CEO Eduardo Bartolomeo stressed that the impact of the Chinese economy is “positive” and that a series of economic stimulus policies introduced by policy makers are helping to boost the Chinese economy, which will also have a positive impact on the iron ore sector. In response, the company is “very optimistic” about the outlook for Chinese demand.
“All the good news has been eaten by imported iron ore”
However, it should be noted that under the improvement of demand, the iron ore end will again erode the profit space of China’s iron and steel enterprises, and the environment facing the development of China’s domestic steel production enterprises is still grim.
On October 28, the Steel Home website 2024 steel industry chain development situation conference was held in Nanjing, Jiangsu province, China Iron and Steel Industry Association Vice President Luo Tiejun attended the meeting and delivered a keynote speech entitled “On the Stable growth of the steel industry”. Luo Tiejun pointed out that in recent years, China’s steel production has remained at the level of 1 billion tons, and the external dependence of iron ore has been maintained at more than 80%. In the past three years, China’s iron ore imports have exceeded 1.1 billion tons, and the strong domestic demand has led to the difficult fall in mine prices. Especially since the beginning of this year, steel prices have fallen and industry benefits have fallen sharply, but due to the pig iron production growth of 2.8%, iron ore prices remain strong and even rise against the trend. “On October 24, the state announced the issuance of 1 trillion yuan of Treasury bonds, and iron ore prices immediately rose by $4.4 / ton, and all the good news was eaten by imported iron ore.”
Guo Bin, president of China Minerals, said at an event in Shanghai on the sidelines of the China International Import Expo that rising costs were squeezing margins at the world’s largest steelmakers.
Most steelmakers’ net profits fell
Rio Tinto posted a net profit of nearly $40 billion in the first half of the year
Take Rio Tinto, for example, in the first half of this year, Rio Tinto’s revenue reached 26.67 billion dollars, down 10% from the same period last year; Net profit of $5.12bn was down 43 per cent from a year earlier, and Rio’s underlying earnings for the first half of the year were the lowest in almost three years.
Also facing falling profits are Chinese steelmakers. According to the statistics of the China Steel Association, in the first half of this year, the operating cost of the key statistics member steel enterprises fell 3.06% year-on-year, but the operating income of 3.19 trillion yuan, down 5.56% year-on-year, the income decline is greater than the cost of 2.5 percentage points; In terms of profits, CISA key statistics member steel enterprises profit total 33 billion yuan, down 68.8%, the loss reached 44.6%.
Although Rio Tinto’s net profit in the first half of this year fell to a near three-year low, it was still high at $5.12 billion, or about 37.275 billion yuan at the latest exchange rate.
Combined with Vale, BHP Billiton and FMG, it can only be said that the profits of the four major mines make the domestic steel industry prohibitive.
Today, throughout the entire industrial chain, iron ore continues to be strong, and the current profit of the steel industry is mainly in the iron ore end, the follow-up in the steel mill low inventory, raw materials are negative feedback or replenishment, this will be the most important factor affecting the steel trend in the fourth quarter, and it will directly affect the profits of steel enterprises.
At present, China’s steel industry is facing severe challenges and opportunities to promote the integration and restructuring of the industry is still continuing, the “cornerstone plan” of the steel industry is also orderly, research and steel production of low-carbon process change to match the construction of resource security system, the establishment of a set of “mining construction and operation” as one of the whole life cycle iron ore strategic security mechanism, still a long way to go! However, we believe that the giant ship of Chinese steel will surely cross the rapids and dangerous beaches, and will eventually sail to a more magnificent victory!
