A bit more, Finely balancedAlready steel production has...

A bit more,

Finely balanced

Already steel production has recovered from the 3.5-year lows pretty much enforced by government policy late last year and early this year, when a directive to maintain blue skies over Beijing for Lunar New Year and the Winter Olympic Games kept steel factories at bay.

Stats from a China Iron and Steel Association survey last week suggest steelmakers in the Middle Kingdom, the key factor in global iron ore pricing given China’s 60% share of 60% of world steel production, were producing at rates not seen since last May.

Member mills of the official industry body churned out crude steel at a rate of 2.32Mt/day from May 21-31. If non-member mills were included the CISA estimates that crude steel was flying out of the country’s furnaces at a rate of 3.17Mt/day.

The pace of the recovery in steel production, absent of demand drivers like infrastructure and property investment, has some folk worried the Chinese government could again clamp down on output in the second half of the year.

The Covid response has also hampered both downstream and upstream demand for metals.

“Infrastructure accounts for ~30% of China’s steel consumption and 20‑35% of China’s copper, aluminium and zinc demand,” Commbank analyst Vivek Dhar said.

“Policymakers have eased restrictions for property developers and home buyers in an attempt to stabilise the property construction sector. Despite these policy adjustments, the property construction sector continues to remain under pressure with mortgage demand still very subdued.

“The property construction sector accounts for ~30% of China’s steel demand and 20‑30% of China’s copper, aluminium and zinc consumption.”

While sentiment in markets in general has been bearish in recent weeks, Eames said that may actually show an underlying strength in the supply-demand balance for iron ore.

“What’s interesting is with iron ore prices, we’ve had a period in the last three months where I’d say sentiment globally, in markets has been pretty terrible,” he said.

“We’ve seen large, significant challenges in markets, we’re seeing concerns over the pace of growth. We’ve seen continuing bad news coming out of China and despite that the iron ore price is at relatively high levels.

“I think that’s an indicator that there’s an underlying strength in the iron ore market despite all this negative sentiment, and it wouldn’t take much for that with a little bit of positive sentiment and stimulus as you suggest, for iron ore prices to really feel the upward pressure again.”