Surge in China steel making buoys iron ore miners, hurts local producers
Increased steel production in China is pushing iron ore prices higher but resulting in lower margins for Australian steel makers including BlueScope.
The production uptick at Chinese steel mills is expected to gather pace despite an edict for output to be curbed in a bid to reduce carbon emissions, analysts and fund managers say.
Australian Steel Association chief executive David Buchanan said that, in the past few weeks, there had been a step-up in China steel production. “We can certainly see the demand signals there. We can certainly see production is definitely ramping up,” Mr Buchanan said on Monday.
This is helping to underpin strong iron ore prices for miners such as BHP and Rio Tinto, although prices slipped on Monday. The China Iron Ore and Steel Association said crude steel output in August and in the first 10 days of September was higher than in the same period in the last three years.
Iron ore demand in China is increasing as Beijing rolls out economic stimulus. Bloomberg
Iron prices rose almost 20 per cent since the start of September to around $US120 a tonne, reaching six-month highs, before softening on Monday.
Ben Cleary, a portfolio manager at Tribeca Investment Partners, said he expects iron ore prices to remain at similar levels, or increase slightly over the next few months. “I can see prices continuing to hold if not increase into the year-end,” Mr Cleary said. “I’m in the more positive camp”.
“Over the last eight weeks Chinese policy has been incredibly loose and that’s flowing all the way down to steel mills and their customers,” he added.
But the surge in Chinese production is hurting BlueScope, Australia’s largest steel maker. The company’s chief executive, Mark Vassella, told analysts on
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