Steel shortage in China - miner sounds warning as cuts bite
THE world’s largest steelmaker is at risk of a steel shortage this winter as environmental curbs kick in, according to iron ore miner Fortescue Metals Group Ltd, which raised the possibility that overseas mills may even have a chance to sell more of their products to China.
“If construction activity is able to continue without steel production, then of course there’s going to be a short supply of steel, margins are going to get pushed very high,” chief executive officer Nev Power says. “If steel prices in China are much higher than the surrounding regions, I’d have thought that maybe other countries will be thinking of exporting steel into China.”
China’s been ordering illegal mills to close to reduce overcapacity and clean up the environment, and officials plan further output cuts at remaining plants this winter. The nationwide drive is resonating through the global steel market as prices rise and Chinese exports sink, with producers keeping more at home.
An opening for non-Chinese mills to exploit a temporary shortage would mark a reversal of the narrative in recent years, when China’s been more associated with oversupply, rampant overseas sales and accusations of unfair trading.
“These are very significant, externally imposed cuts,” Power says after the Perth-based miner reported quarterly production. “The thing that makes it a little difficult to fully contemplate and forecast is that the cuts will depend a little bit on weather conditions. If the weather conditions aren’t as bad as what people had thought, then the cuts won’t be quite as severe.”
Steel prices have risen this year, with spot reinforcement bar gaining last month to the highest since 2011. That’s boosted profit margins of steelmakers to a nine-year high, according to data compiled by Bloomberg. China accounts for half of global steel production and it’s the top buyer of seaborne iron ore.
In the twice-a-decade Communist Party congress that ended this week, President Xi Jinping referenced the landmark environment policy in his address to delegates. Citigroup Inc has said its expects strict enforcement of the supply-cut policies in order to guarantee planned reductions in pollution.
While the capacity and pollution curbs in China have aided steel prices, they’ve contributed to weakness in iron ore. Futures fell in Asia yesterday, with the contract on the Dalian Commodity Exchange capping the longest run of losses since August 2016. On Thursday, spot ore with 62% iron content dropped 1.2% to US$61.47 a dry tonne, according to Metal Bulletin Ltd. — Bloomberg