Iron Ore Prices Drop Further by 6% After China Warns Steel Mills Exploiting Price Hike

On May 14th, authorities in Shanghai and Tangshan (China) issued warnings to local steel companies about exploiting price increases, collusion, and spreading misinformation to profit from the recent record-high steel prices. According to Reuters, Shanghai's market regulators announced their cooperation with other relevant agencies to work with steel mills, urging them to "offer reasonable selling prices" and collaborate to stabilize steel prices.

 The announcement explicitly stated that steel manufacturing and trading companies should not fabricate or spread rumors about price hikes to disrupt the market order.

Moreover, the announcement also prohibited excessive price increases, except in cases of "significant changes in production costs."

 According to the authorities, steel prices in China had risen beyond the cost increase.

 China's Tangshan, a major steel-producing city and the home to more steel production than India, the world's second-largest steel producer, also issued a similar statement after working with all steel mills in the city. Tangshan declared that it would take strict actions against steel producers found to be manipulating market prices or hoarding stockpiles.

 Following these announcements by Tangshan and Shanghai, steel prices sharply declined for the second consecutive session.

 On May 14th, rebar steel prices, mainly used in construction, on the Shanghai exchange for October delivery, closed down 6% at 5,640 CNY (876.61 USD) per ton; hot-rolled coil steel, mainly used in manufacturing, also dropped 6% to 6,135 CNY per ton, resulting in a total decline of approximately 9% in the past two sessions for both types.

 Nevertheless, over the entire week, steel prices still rose over 2%, and from the beginning of the year until now, both types of steel have seen increases of 34% and 43% respectively.

 The steel price slump has put pressure on reducing prices for steel production materials.

 On the last trading session of the week, iron ore futures for September delivery on the Dalian exchange fell by 7.5% compared to the previous session, down to 1,173 CNY per ton, bringing the two-session decline to 17%.

 However, over the entire week, iron ore prices still rose by 4.4%.

 Iron ore imports to Chinese ports (62% content) also dropped 12 USD to 220.5 USD per ton; and coking coal prices on the Dalian exchange fell 5% to 1,922 CNY per ton, while coke dropped 6.4% to 2,615 CNY per ton.

 Amidst the stagnation of steel prices, there are emerging less optimistic forecasts for the future price prospects.

 Moody's Investment Services stated that while iron ore prices have recently surged, sustaining such high levels in the long term would be challenging. However, the organization predicts that the fundamental factors of the iron ore market will remain robust this year due to limited supply.

 According to Barbara Mattos, a senior vice president at Moody's: "Increasing steel demand will maintain iron ore prices around or above the range of 70 to 100 USD per ton."

 Vale's iron ore production capacity in 2021 is forecast to be around 315-330 million tons, higher than the 300 million tons in both 2019 and 2020 but significantly lower than the 380 USD per ton in 2018.

 Meanwhile, most iron ore producers tend to maintain current production levels. Companies like BHP, Rio Tinto, Vale, and Fortescue Metals Group, which control over 70% of the global iron ore market, are focusing on sustaining the supply and increasing compliance risks for environmental, social, and management regulations for new projects.

 On May 13th, ANZ Bank also lowered its forecast for iron ore prices to 150 USD per ton by the end of 2021, citing reasons such as China gradually removing stimulus measures, construction activity nearing the peak season, and minimal chances of China imposing restrictions on iron ore imports from Australia.

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