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Do China’s Steel Prices Have More Room to Run?

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Feb. 28 2018, Updated 7:30 a.m. ET

China’s steel prices

Chinese steel mills have been taking advantage of elevated steel prices to continue increasing their output. In 2017, Chinese steel prices increased ~30%. Domestic steel prices have more than doubled since their lows of late 2015. In this part of our series, we’ll discuss how steel prices have performed in recent months. We’ll also see what they could mean for the future outlook.

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More room to run?

According to the managing director of Japan’s biggest producer of recycled steel, steep prices in China have more room to run due to the Chinese government’s crackdown on steel capacity and synchronized global growth.

Jefferies believes that as the winter idling comes to an end, seasonal steel demand in China should absorb additional steel production. This absorption, in turn, should support higher steel prices. The firm’s analyst Seth Rosenfield believes that as local mills restart production after the winter curbs, inventory levels will be too low. Due to the lag between rebuilding supply and seasonally stronger demand, he feels that steel prices could have an upside.

Impact on mining companies

While there’s a possibility of a correction in the short term, restocking activity after winter’s cuts is expected to keep supporting steel prices as well as iron ore prices. This trend could be positive for seaborne suppliers (PICK) such as Rio Tinto (RIO), BHP (BHP)(BBL), Vale (VALE), and Cleveland-Cliffs (CLF).

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