China’s
steel industry, the world’s largest, isn’t prepared for a looming
shortage of iron ore in the second half that’s set to drive prices
higher, according to a prominent industry adviser, who warned of
devastating volatility should mainland holdings sink below 100 million
tons.
Prices will
“absolutely” continue to rise as mine closures in Brazil spur a
deficit, Wu Wenzhang, founder and president of Shanghai Steelhome
Information Technology Co., said in an interview. Mills in Europe and the
Middle East will be in a worse position than China’s in the event of a
prolonged shortage, he said.
The global
market is reeling from a January dam disaster at a Vale
SAoperation that triggered a sweep of mine closures across
Brazil and boosted prices to the highest since 2014. Shipments from the
South American nation are collapsing,
while Australian disruptions and signs of a pick-up in China’s steel
demand offer a further boost to prices. So far, mills in China have
played down the potential disruption, saying supplies will
pick-up elsewhere.
“They don’t
realize what’s going to happen,” Wu said on Saturday on the sidelines
of Steelhome’s conference, which attracts about 1,000 delegates from
around China. The disruptions will amount to 60 million tons of lost
supply this year, according to his “conservative” estimate.
“The only
thing we can do is try to convince the steelmakers to believe what could
happen with iron ore supply, and to prepare for the upcoming shortage,”
he said.
Wu says he’s
watching stockpiles for signs of stress, with any slide below 100 million
tons likely to trigger “devastating” volatility. Inventories sank 3.4
percent to 143.9 million tons in the week to April 12, according to
Steelhome’s own data on Monday. The safe minimum is about 120 million
tons, Wu said.
The benchmark
price of spot ore climbed to $95.90 a ton on Friday, rising for a fifth
straight week, according to Mysteel, and aiding top suppliers BHP Group
and Rio Tinto Group. Citigroup Inc. has
forecast that a looming supply crunch will drive the commodity to $100.
In other
comments from Wu:
·
Iron ore mines in China have limited capacity
to plug any supply gap, given environmental constraints and high costs. If
prices stay above $100 a ton, China miners may ramp up production.
·
While China’s steel prices will continue to
rebound into the second half of the year as the economy stabilizes and
demand recovers, average rates over the year will be lower than 2018. Wu
noted the solid credit growth in the first quarter.
— With
assistance by Martin Ritchie
, Bloomberg |