A downward trend in Iron Ore prices worldwide is a symptom of China’s steel demand ceiling

Oct-20-2017 Post / a-downward-trend-in-iron-ore-prices-worldwide-is-a-symptom-of-china-s-steel-demand-ceiling

Industry analysts and observers alike have noticed a constant drop in the price of steel in India to the tune of 10% over the past five sessions, presently trading at approximately $70 a tonne. Australian Iron ore producers have most definitely felt the effects, with the Australian Central Bank announcing it was expecting a short-term drop in the price of the raw material.

The reason behind this drop in a viable raw material like iron ore has to do with changes in the biggest producer and consumer of steel in the world, China. At a point where global supply of Iron ore is at an all-time high, and rising, the biggest player in the global steel industry is making plans to temper their need for steel. A new restriction on the production of “hot metals” through the winter season in northern China is just one in a series of steps to developing sustainability practices in a country plagued by accusations of disregard for the environment.

Recent changes in policy in China will see strict air pollution control measures near Beijing, from November 15, 2017 to March 15, 2018. This policy dictates that steel mills will only run their furnaces at 50% or less off total utilisation. Coupled with a drop off in the demand for infrastructure and property in developing regions like Tianjin and Hebei is another red flag for the demand of steel in China.

With such radical changes coming from China, who for a long time now has been a major influencer of steel markets globally, the prices of iron ore will be under pressure for the foreseeable short-term future.