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Iron Ore & Steel Q4 Outlook: Iron ore to stay strong despite fall in steel output

Highlights

More than 50% of respondents see iron ore prices at $100-$110/mt CFR

Crude steel production, steel inventories tipped to decrease

China's 14th Five-Year Plan expected to boost steel demand

Melbourne — Iron ore prices are expected to remain relatively strong in the October-December quarter despite demand falling on the back of reduced crude steel production, according to the latest S&P Global Platts quarterly Iron Ore & Steel Outlook released Sept. 16.

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The Outlook found that 54% of respondents expected iron ore prices to range between $100/mt and $110/mt CFR China in calendar Q4. Just over one-third believed iron ore prices would stay above $110/mt and 11% thought they would fall below $100/mt.

The Platts 62% Fe IODEX benchmark averaged $122.50/mt CFR in August.

Only 18% of respondents expected their iron ore requirements to increase in Q4, with 39% tipping them to fall and 43% believing their demand would be similar to Q3.

Some respondents commented that the extent of China's winter steel production cuts created uncertainty around demand levels.

China's crude steel production hit a record high in August, but 54% of respondents expected output to fall in Q4, while 32% thought it would stay at a similar level to the July-September quarter, according to the Outlook.

In potentially positive news for steel prices, 54% of respondents expected steel inventories to come down in Q4, with just 14% believing they would increase.

Rising steel inventories in early September contributed to weaker spot market prices of steel in China.

Overwhelmingly, hot-rolled coil was expected to outperform rebar (68% versus 25%) in the domestic market in Q4, with respondents saying the recovering manufacturing sector was boosting HRC appetite.

The consensus was that HRC margins would be in the range of Yuan 200-300/mt ($29-$44/mt) in Q4.

Weaker domestic steel prices could see China become competitive in exports again, but only 29% thought exports would rise in Q4, while 22% thought they would fall.

Platts spoke to 28 companies for the latest Outlook, comprising Chinese steel mills and traders, international trading houses and major resources companies.

With the Chinese government set to focus on its 14 Five-Year Plan (2021-2026) at a meeting in Beijing in October, participants were asked about their expectations. Some 68% thought the plan would help the steel industry; consolidation, urbanization of central and western China, and more infrastructure build were all cited as supportive factors.

"I think the government will try to push for a faster urbanization rate, and try to complete the development of infrastructure," an international miner source said.

"More mid-sized enterprises are likely to close after merging with larger mills. This will be another form of decapacity, and it means the 'giants' will have more pricing power and a larger voice in the industry," a Chinese steel mill source said.