Why Chinese Steel Can’t Support Iron-Ore Prices
Published by
ScrapPrices
Published on May 25,2016 09:28 AM Metals
Steel and iron-ore prices are again on the slide, and any uplift from Chinese demand will be limited
Why Chinese Steel Can’t Support Iron-Ore Prices

WSJ - The polish that suddenly made Chinese steel, and in turn global iron ore, look shiny earlier this year is wearing off. Don’t expect it to come back, except in self-defeating spurts.

Since climbing 54% between the start of the year and late April, front-month futures for Shanghai steel rebar have tumbled about 30%. Steel’s rally helped send the benchmark physical price of its key ingredient, iron ore, 60% higher. It peaked on the very same April day, and has since fallen by 27%.

Chinese regulators have put a damper on the market by increasing margin requirements and transaction fees for both steel and iron-ore futures, which is starting to curtail the speculation that boosted prices earlier in the year.

Though futures speculation lighted the fire, investors should keep one eye on underlying commodity supply, which may have been the original tinder. Steel traders started the year with the lowest level of inventory in four years, producing a squeeze when a seasonal uptick and some stimulus measures drove up demand after the Lunar New Year.

Now supply is catching up. Traders’ inventory of wire rod, a commonly used rolled-steel product, ticked up this month, according to data from Wind. And with the high prices of recent months helping nearly every Chinese steel mill turn a profit, according to a May survey by MySteel—a situation not seen since 2012—expect a surge in production as mills race to capture those margins.

Such extra production won’t be easily absorbed, given that China’s steel demand is due for a seasonal fall next month. That could explain why sentiment among steel-market participants turned negative in May, the first time this year, according to a survey by Macquarie’s Ian Roper.

This being China, a slug of stimulus or a relaxation of the curbs on futures markets could spark another rally in steel and iron ore. But given the lack of sustainable demand and the constant threat of extra supply, those rallies should peter out too.

MORE METALS NEWS
July 16,2025 07:00 AM
In the second quarter of 2025, mining company Rio Tinto achieved its highest level of iron ore production in Australia’s Pilbara region since 2018. Total production amounted to 83.7 million tons, which is 20% more than in the previous quarter and 5% more year-on-year. This is stated in Rio Tinto’s quarterly report.
July 15,2025 12:00 PM
The U.S. Department of Defense plans to continue working with rare earths companies to ensure diverse American supply of the critical minerals used across the economy, a defense official told Reuters on Tuesday.
July 14,2025 07:00 AM
U.S. efforts to break China's dominance of the rare earths market and to drive investment in its own industry have moved up a gear with a Washington-backed plan to create a separate, higher pricing system.