What’s Driving Chinese Steel Prices in 2017?



China’s steel prices

Among the most dominant factors driving the recent iron ore price rally are higher steel production and the rise of steel prices in China (FXI).

Although these factors helped iron ore prices in 2016, the question remains whether steel prices can remain buoyant going forward. The answer lies in the underlying demand trends for steel in China and elsewhere.

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Higher prices in 2017?

In December 2016, steel prices in China hit 3,557 Chinese yuan per ton, the highest level in two and a half years. While steel prices in China rose almost 60.0% in 2016, they started falling in the last few days of 2016 due to falling futures.

However, steel prices have stayed buoyant in 2017 YTD (year-to-date). Chinese futures contracts for steel rebars (reinforcing bars) have risen 17.0% in 2017.

Japan’s largest steelmaker, Nippon Steel, also expects steel prices in China to remain strong in 2017. The company’s executive vice president, Toshiharu Sakae, said in a Reuters interview, “Steel demand and prices in China have been fairly strong on the government’s stimulus.” Nippon expects iron ore prices to move toward $90 per ton on expectations that Chinese imports will rise.

Impact on mining companies

Chinese steel prices and seaborne iron ore prices move in tandem. Many analysts believe we could see a moderation in iron ore prices in 2017. Any fall in steel prices could put pressure on iron ore prices.

China’s cutbacks in domestic steel production could result in falling iron ore imports from seaborne suppliers such as Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale (VALE), and Cliffs Natural Resources (CLF).


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