Iron Ore: Rally to fresh highs to run out of steam by year-end – ANZ

Iron ore prices continue to hit near-record highs, driven by robust housing construction and loose monetary policy. With margins strong, many steel producers appear to be making the most of the situation. This will eventually abate, with downside likely for steel and iron ore prices, in the view of strategists at ANZ Bank.

China’s steel production not to decline significantly in 2021

“Steel producers appear to be making the most of the high margins, boosting output ahead of possible further restrictions. This is creating strong demand for steel making raw materials. Combined with ongoing supply side issues, iron ore prices look well supported in the short-term.”

“With industry expectations that Chinese authorities will continue to support domestic growth, coupled with positive margins and relatively low inventories, we still expect steel output to grow. We forecast steel production will rise 2.3% in 2021 to approximately 1,078mt.”

“If stimulus measures end later this year, steel output will eventually weaken. This could be exacerbated by increasing environmental curbs on the steel industry, which could have a sizeable impact on iron ore prices.”

“We see growth in steel demand moderating in the later part of the year. This threatens to push the steel market into oversupply and poses risks to steel and iron ore prices.”

“We expect to see monthly steel production back below 90mt in H2 2021. This would see China’s iron ore import requirement fall to 90-95mt. Over the past 12 months, imports have averaged 99.5mt, and this should see iron ore prices come under pressure.”