High demand by Chinese steel futures spikes iron ore prices

Strong demand by China for iron ore has spiked the prices of the raw material. This is despite the Chinese government announcing production cuts in the country. Fastmarkets MB that always gives reliable data on commodities revealed that a benchmark of 62% iron ore fines imported to the northern part of China saw trade at $173.63 a tonne – an increase of 1.59% from the last trade.

Steel futures in China meanwhile, further rallied in early trade to see fresh highs. This was further supported by strong demand in the domestic market and worries among companies over curbs. Restrictions on manufacturing companies of world’s biggest producer and exporter of steel are a worrying aspect.

In China's biggest steel manufacturing city of Tangshan, the government has sought cuPng down production in several mills citng pollution as a cause of concern. Experts in the market state that the curbs imposed by the Chinese government are in support of the prices.

The biggest steel producing city of China, Tangshan had announced restriction on steel making at 23 mills citing environmental hazards in March. This had brought the iron ore futures lower but had increased hot-rolled coil futures.
The Tangshan curbs were released in a draft in March as part of a document. The curbs were imposed from March 20 to December 31. Mills that fail to meet targets of emission control would be penalized, the draT stated.

Snarling shipping traffic

China has always been ahead of its times and even in the case of steel it has always ensured its steel mills are way ahead. This has created a huge difference in prices in North America and South America.

There are other factors as well contributing to the issue. Americans and Europeans have started buying products made in China online due to the pandemic. This has led to a snarl in traffic for containers that are popularly into shipping steel products. This has led to commodities like hot-rolled coil being loaded into bulk vessels that are supposed to be shipped to the US. This process takes much more time than loading the containers that are commonly used for the purpose.

The rising demand has sent the cost of hauling dry goods spiralling more than 50% this year. Experts monitoring the markets have said that the rally isn't over as the rates to transport unpacked products like iron ore and coal will mostly be high this year and probably into 2022.

Iron ore was the best performing commodity last year thanks to China's early victory over COVID-19 and Beijing's heavy expenditure on economic stimulus. This was particularly for the infrastructure of the country.

Iron ore prices climbed the highest level since September 2011 in mid-January at $174.07 for a tonne. The standard hit a new high of $191.70 the next month in February the same year.

The prices are expected to increase by almost half next year. This is gradually expected to increase to hit $242 a tonne by the end of 2026.

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