Cricket Season Weighs On Market Activity
By mid-January, a lot of people have somewhat reluctantly returned to work. However, with the cricket season still in full flight, their thoughts remain on captain Pat Cummins, or on the beach or at backyard bar-b-ques. In these entirely understandable circumstances, ASN can officially report that not much has been happening. For the most part, steel prices have been holding steady in the absence of any influence from overseas or domestically: in the same way that a body surfer treads water while waiting for the next set of waves to come along. (Okay, enough of the summer analogies). That said, China rebar and Turkey rebar both lost about $15 m/t during the holiday break; and wire rod has dropped $25 m/t in the past two weeks. These declines were largely due to weak domestic demand for steel in China, and a fall in the price of steelmaking ingredients. As our Steel Raw Materials graph shows, the Steel Feedstock Index has dropped almost $25 m/t since January 2. The Index is unique to Australian Steel News. Whilst it doesn´t show the actual cost of buying steel in the Australian marketplace, it does show the month-to-month change in the combined price of the key ingredients proportionally used in making steel
via the blast furnace (BOF) method. Those ingredients are iron ore, coking coal and steel scrap. Iron ore prices peaked at US $144 m/t earlier this month, but have now retreated to $127. The price of the red mineral is keenly watched because so much of the final price of steel depends on it; as does so much of Australia´s national wealth. About 90% of Rio Tinto´s underlying earnings come from iron ore, so the release this week of the company´s Fourth Quarter 2023 Operations review made for interesting reading. Rio says its Pilbara iron ore production (100% basis) in Q4 last year reached 87.5 million m/t, leading to a full-year figure of 331.5 million m/t which was 2% higher than 2022. Its Pilbara iron ore shipments in 2023 were 331.8 million m/t. This was 3% (or 10 million m/t) greater than 2022 and therefore the second highest shipment level on record.
Vivek Dhar, chief commodity analyst at the Commonwealth Bank of Australia has told the Australian press that an iron ore correction is underway and likely has more to go. “China’s steel mill margins have slumped as iron ore prices have increased,” he commented. “Typically, negative steel mill margins will weigh on iron ore prices, albeit with some lag historically, as the economic incentive to produce steel and consume iron ore is reduced. The last time that steel margins in China were this negative or lower for a sustained period (in late June 2022), iron ore prices eventually dipped below US $100 m/t. The current downward correction in iron ore prices could threaten the same level temporarily too,” he surmised. However, Mr Dhar said he believes that, once steel mill margins stabilise, iron ore prices are likely find support in the US $100 – 110 m/t range, as they await China’s policy direction for 2024.
“China’s Two Sessions policy meetings in March, where policymakers announce the country’s economic growth targets for 2024, is shaping up as a key event for iron ore and other commodities. We think policymakers will announce an economic growth target of around 5% in 2024, similar to its target last year,” said Mr Dhar. In trading this week, falls in the share prices of the heavyweight miners have reflected Mr Dhar´s opinion. BHP, Fortescue and Rio Tinto have all fallen by more than 2% this week alone, at the time of going to press.
That concludes the commercial break: now it´s back to the cricket.