BEIJING: Iron ore prices have rallied despite flagging steel demand from the ailing Chinese property sector as Chinese mills maintain output in the absence of a firm government production cap and replenish low inventories of the raw material.
The rising prices are a boon for global miners such as Vale and BHP and bolsters BHP’s view from last week that China, the world’s biggest iron ore consumer and steelmaker, will still produce more than a billion tons of steel this year.
The surge runs counter to recent lacklustre Chinese economic data and is occurring even as companies in the property sector, the biggest steel end-users, contend with debt and cash flow issues.
The most actively traded iron ore futures contract on the Singapore Exchange has climbed by 13.5% in the two weeks to Aug. 25 with physical prices for ore delivered to China rising by a similar amount. The September SGX future hit a one-month high of $114.85 per metric ton on Aug. 24, before easing back to $112.27 a ton on Monday. Most Chinese steel mills are maintaining normal production ahead of a still-awaited government order to cut output so they can keep generating cash flow and lock in profits, which is supporting ore demand, according to analysts.
Mills are also relying more on hot metal, a steel precursor, that consumes more iron ore, since scrap steel is in short supply amid the property slowdown.
“The trigger for (the price rally) is the easing expectation that a nation wide steel production cap will come any time soon.