Home » Australian coking coal continues to be shipped from ship to ship, while the iron ore bubble continues to flood the market. Will a negative feedback effect on steel prices occur?

Australian coking coal continues to be shipped from ship to ship, while the iron ore bubble continues to flood the market. Will a negative feedback effect on steel prices occur?

According to reports, two more ships carrying coking coal from Australia’s Haipointe port will soon arrive at Guangdong Zhanjiang port. At present, only a few domestic steel mills are importing Australian coking coal, but it is expected that China will fully lift the import restrictions on Australian coking coal before April. Despite the recent increase in the price of Australian coking coal, it has certain advantages in terms of quality and price over domestic coking coal. After the ban is lifted, domestic southeast coastal steel mills are expected to import Australian coal.

Australian coking coal producers predict that coking coal exports to China in 2023 will rapidly recover to the level of 2020, with annual exports to China exceeding 40 million tons. This exceeds the total import of Mongolian coking coal by China’s steel mills in 2022, making Mongolia the largest importer of coking coal in China for the second consecutive year.

The sudden increase in China’s steel mills importing coking coal from Australia and Mongolia, along with the end of the domestic heating season, will significantly change the domestic coking coal price supply pattern, and a price decline is foreseeable. However, it is unknown whether this will cause “negative feedback” in steel prices, resulting in a fall in steel prices.

Regarding another important raw material for steel, iron ore, the 62% grade iron ore price has been maintained at 900 yuan/ton, but many steel mills believe this price is high. China Baowu’s Baosteel and Xinsteel have both stated that the current iron ore price is at a relatively high level, and there is pressure of supply exceeding demand in the domestic and international iron ore market. As of today’s morning trading, the Singapore Mercantile Exchange iron ore swap index is quoted at $123/ton, about RMB 842/ton, and the domestic spot price is over RMB 920/ton, which may contain a lot of “bubbles.” The upward momentum should be in decline, and when it will fall depends on when steel price “negative feedback” will occur.

This week, steel demand has improved, with the average daily volume of domestic construction steel at 146,000 tons for the first three working days of this week, a significant increase from last week’s average daily volume of 82,000 tons. The pace of resumption of construction sites is expected to reach close to 80% by the end of this week. Steel mills are also resuming work and production at a faster pace, with short process steel mills resuming work at a rate close to 85%, far higher than the same period last year. Steel production is also steadily increasing.

From our understanding of the steel market situation, there is no supply exceeding demand, and the basic balance of supply and demand is gradually improving. Steel demand is gradually recovering, and market confidence is also recovering. Whether steel price “negative feedback” will occur depends on whether demand will significantly improve, that is, whether the demand for steel market will be falsified.

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