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Demand For Construction Steel Soars In China

2018-11-01

China's manufacturing industry might have slowed slightly this month but its construction sector could be in the first stages of a government-sponsored boom if a 20% rise in the price of iron ore over the past three months is a guide.

Because it is only used to make steel, iron ore is a first mover commodity when an economy picks up or slows down with the increase in the benchmark price for ore containing 62% iron to $76.70 a ton a pointer to a potentially significant development in China which consumes more than half the world's iron ore.

In early July, as uncertainty was brewing about the effects of China's trade war with the U.S. the iron ore price slipped to around $63/t, down from $79/t in February.

The latest upward move, back almost to where it was earlier in the year, has taken iron ore miners by surprise, not just because it was unexpected but also because of a subtle change in the type of ore China is buying.

For much of the past two years China has been demanding high-grade ore, paying a hefty premium for the best ore while hitting low-grade producers with big discounts.

Big Miners Are Winners

Big miners such as BHP, Rio Tinto and Vale are the major beneficiaries thanks to the high-grades of the ore in their mines.

The case for high-grade ore has been supported by toughening environmental clean-up rules with premium raw materials, including coking coal, leaving less waste and reducing the time that a blast furnace needs to operate, which cuts emissions.

Source: Forbes