信德海事网-专业海事信息咨询服务平台
  >  COMMODITIES

Bulk commodities under pressure as China steel prices drop


Bulk commodities, which have outperformed industrial metals for the past six months, are coming under pressure as weakening steel prices hammer the profitability of China's vast steel industry.
 
Iron ore, a major source of income of the world's biggest miners, has slumped to a five-month low on fears Chinese mills will cut consumption of the steelmaking ingredient.
 
"Our calculations show hot rolled coil cash margins for a generic Chinese steel mill have now dropped to the lowest level since second quarter," said Colin Hamilton, analyst at BMO Capital Markets. "We expect strong cuts to steel production over the coming month from what have been very strong levels over recent months."
 
China's steel mills have been producing flat out this year as profit margins surged in the wake of supply side reforms aimed at reducing excess capacity. They have also ramped up output ahead of local government curbs to reduce air pollution this winter, a move that has swamped the market with steel. After reaching a seven-year high in late August, the price of Shanghai rebar — a steel product widely used in construction — has dropped by more than a fifth, putting margins across the industry under severe pressure.
 
That has now fed through into the iron ore market, where the benchmark price has dropped 12% over the past week to a five-month low of $64.75/t.
 
While demand for steel typically slows at this time of the year in China as construction activity slows for the winter, the industry is facing other headwinds, including a slowdown in the construction and car markets.
 
At the same time, analysts say infrastructure investment has yet to pick up significantly even though spending on roads, railways and water projects has been a key focus of stimulus measures announced recent months as Beijing fights a trade war with the US.
 
"For the past three years in a row, the market has underestimated the strength of bulk commodity prices due to all sorts of reasons, from initial scepticism of Chinese supply side reforms to underestimating tier 3-4 property booms and seaborne supply disruptions," said analysts at Citi. "We argue this time it could be different."
 
Analysts also think the price differential between high grade and benchmark iron ore, which blew out over the summer as mills cranked up output, will narrow as steelmakers put profitability over productivity. Indeed, premiums have already declined to $17/t, down from $21/t.
 
Thermal coal, which is burnt in power stations to generate electricity, has been caught up in the bulk commodity sell-off. It has fallen below $100/t after China imposed restrictions on imports.
 
Source:sxcoal

Please Contact Us at:

admin@xindemarine.com

 
Ctrl+D 将本页面保存为书签,全面了解最新资讯,方便快捷。