Bleak postcard from China

COKING coal prices will fall further due to low demand while iron ore prices could retest 2015 lows in coming months, according to steelmaker insight gathered by UBS.

Blair Price

The broker consulted with Hebei Iron and Steel, which produced more than 30 million tonnes of steel last year, as part of its commentary on the bulk commodities in its second Postcards from China report.

In regards to China’s steelmaking scene, UBS said overcapacity remained while debate raged over “true steel production numbers” in the country, with some steel mills not disagreeing that it is closer to the 1 billion tonnes per annum rate than “monthly data suggests”.

“There is some joy though for the sector with recent declines in iron ore and coal returning the industry to profitability in May after being loss making for the first four months of 2015,” UBS said.

“Iron ore prices are seen retesting 2015 lows over the coming months by some, while all steel producers we spoke to are fully aware of the new supply coming to market.

“Though some thought low $US50's per tonne would be a floor with recognition that the iron ore producers began to make noises when the price went below $50/dmt cfr [dry metric tonne, cost and freight] in April this year.”

UBS said Hebei Iron and Steel is expecting coking coal prices to go down further “due to no demand and the fact that the entire coking coal industry in China is losing money”.

UBS said supply shuts were not occurring in China as the mines were big employers and had significant obligations to governments.

“Over 70% of mines are state owned and if still operating, are more likely to never shut,” UBS said.

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