Will prices for raw materials such as iron ore and coke continue to rise next year? Analysis: How will steel prices and steel mill profits change? What challenges and opportunities does the steel industry face?
These questions were also hot topics at the 2021 China Steel Market Outlook and “MySteel” Annual Conference held on December 19–20. At the forum, experts from the fields of macroeconomics, industry, and business shared their latest insights on these issues.
Will iron ore prices peak early and then decline?
As 2020 draws to a close, the upward trend in iron ore prices shows no signs of abating. On December 18, the main iron ore futures contract on the Dalian Commodity Exchange rose by more than 6%, setting a new record high, with year-to-date gains exceeding 66%; meanwhile, coke prices have seen nine consecutive rounds of increases in recent months…
How will these commodities perform next year?
Luo Tiejun, Vice President of the China Iron and Steel Association, believes that as the market digests expectations of iron ore speculation and reality sets in, iron ore prices will trend downward.
Ren Zhuqian, a senior researcher at Mysteel, stated that iron ore supply and demand will shift from a tight balance to a more relaxed one, with prices peaking early and then declining; coke supply and demand will both increase, with prices fluctuating widely at high levels; and scrap steel will remain in a tight supply-demand balance.
Some analysts predict that iron ore will remain the strongest performer among raw materials next year. The specific reasoning is as follows: an iron ore supply gap is expected next year, though the market will not be in a state of tight balance. This year, due to the impact of the pandemic, more than 70 million metric tons of iron ore flowed into China. If, under current conditions, overseas pig iron production recovers to last year’s levels, it implies that the volume diverted to China will return to normal levels next year; combined with China’s planned replacement of 30 million metric tons of production capacity next year—which will require approximately 45 million metric tons of iron ore—there will be a supply shortfall for iron ore next year. Therefore, it is believed that iron ore will still rank first among raw materials next year.
Industry Insiders: Average Annual Steel Prices to Rise Overall
Against this backdrop, how will steel prices and steel mill profits change?
Luo Tiejun believes that the persistently high prices of iron ore, scrap steel, and coking coal will also support a trend of rising steel prices. High costs will severely squeeze steel companies’ profits, making it quite difficult for the steel industry to maintain this year’s profit levels.
Li Shubin, Executive Vice President of the China Scrap Steel Utilization Association, stated that this year, plate prices have surpassed those of construction materials. He expects steel production to grow next year, with demand also increasing; export volumes may exceed this year’s levels, and steel prices could continue to rise. At the same time, next year marks the start of the 14th Five-Year Plan. As the national economy continues to develop and all sectors remain active, steel mills are expected to maintain solid profit margins.
Cui Pijiang, President of the China Coking Industry Association, noted that supply and demand determine prices, and costs provide support for prices. Based on current conditions, this year’s profit margin stands at around 4%, which is at a moderate level. Profit levels next year will not be higher than this year—otherwise, downstream sectors would not be able to absorb the costs—and maintaining this year’s level will be extremely challenging.
Dai Ling, Vice President of an industry enterprise, believes that with a favorable macroeconomic outlook next year and increased export opportunities for China, the market will exhibit a pattern of strong supply and demand. Crude steel output is projected to increase by 50 million metric tons next year; however, given this year’s weak economic data, there is a possibility that figures for the first half of next year will improve. Nevertheless, as infrastructure investment and fixed-asset investment growth remain modest at present, a cautiously optimistic outlook is warranted for next year’s economic conditions. Raw material prices are expected to remain relatively strong next year, with the average price rising by 100–200 yuan. Influenced by raw material costs, overall steel prices will not be low, but given the supply exceeding demand, they will not be excessively high either. Overall, the floor for steel prices will rise, while the ceiling faces risks.
Ren Zhuqian predicts that in 2021, the growth rate of domestic steel supply may exceed that of consumption; as overseas consumption and investment recover, overseas demand for steel will shift from indirect exports to more active direct exports; the opening of scrap steel imports will partially replace the market for semi-finished product imports. Overall, the average steel price for the year will rise, with the general steel price index increasing by 5–7 percent, and corporate profits will remain at this year’s level.
Looking further into the future, Chief Analyst Li Jinchenchi believes the industry will face two opportunities: steel consumption may peak during the 14th Five-Year Plan period, and China’s steel industry will enter a period of significant value. At the same time, it will also face challenges such as oversupply and pressure for structural adjustment following the peak in consumption.