Last month, China’s National Development and Reform Commission vowed to severely punish “excessive speculation, price gouging, and other violations” that it say helped lift prices.
The official measures did enjoy some initial success in lowering prices, with spot iron ore retreating from an all-time high of $235.55 a tonne, reached on May 12.
Iron ore has surged through a combination of strong demand from China, which buys about 70% of the global seaborne volume, and constraints in supply, mainly from adverse weather in top shipper Australia and coronavirus-related disruptions in number two Brazil.
China’s steel output hit a record 97.85 million tonnes in April, up 4.1% from March and some 15% higher than the 85.03 million from April 2020.
“As long as demand globally remains strong (including China) and markets are tight, we think it is unlikely China’s authorities will be able to push prices down on a sustained basis,” said Bank of America in a note.
The bank forecasts iron ore will average $172.2 a tonne this year; then $143.8 a tonne in 2022.
“There may be some easing in steel output in coming months as profit margins slip for mills given domestic steel prices have dropped by more than iron ore, but as yet there is little evidence of lower production,” said Reuters columnist Clyde Russell.
“On the supply side, there is some indication of higher iron ore exports, which may put some downward pressure on prices.”
Related Article: Russell: Rising iron ore supply may cool prices where China jawboning fails
Overall, what the recent price action in iron ore shows is that China can only expect limited, and short-term, success in trying to drive down prices using measures that do little to cut steel output.
(With files from Reuters)
