steel sector will recover solidly this year, helped by stronger
government infrastructure spending, despite recent setbacks,
one analyst said.
The recovery will come on the
back of firm downstream demand, rising output costs and looser
monetary policy as long as there is no significant downturn in
the American and European economies, according to Chen Kexin,
chief analyst at the Distribution Productivity Promotion Centre
of China Commerce, a research institute linked to the
countrys Ministry of Commerce.
"The U.S. Federal Reserve will
not end its quantitative easing program unless the risk of an
American recession is removed and U.S. job data improves. This
will continue to give support to commodity prices, including
those of iron ore and steel products," Chen said, noting that
spot prices for 62-percent iron ore fines are expected to
average more than $130 per tonne c.f.r. China this year.
Chinas demand for crude
steel is likely to reach 730 million to 850 million tonnes in
2013 vs. about 730 million tonnes last year, he said on the
sidelines of the China Iron Ore Conference in Beijing sponsored
by AMM sister publication Metal Bulletin, and
could peak at between 900 million and 1 billion tonnes in the
next three to five years, driven by new investments in real
estate and infrastructure, such as railway and metro lines.
Chen didnt rule out the
possibility of Chinese mills eventually establishing
steelmaking capacity overseas to cost cuts, but noted that
total seaborne demand for iron ore would remain high before
Chinas demand peak.
Steel prices will be well
supported by rising output costs, including higher raw material
prices as well as rising energy, labor and logistics costs.
Among them, environmental costs stand out.
Following the governments
enforcement of fresh pollution standards last October,
Chinas Ministry of Environmental Protection said it would
impose revised emissions rules for new steel mills as early as
March 1. The latest action reportedly was prompted by a
significant bout of pollution in January, particularly in
Beijing, which raised the profile of Chinas environmental
Chen also said that "the
unexpected slump last year has led to excessive destocking of
iron ore, so I am expecting an increase in restocking demand
this year, which could consume a part of the expected increase
in seaborne iron ore supply this year."
Major iron ore expansions in 2013 include a
53-million-tonne-per-year project by Rio Tinto Plc and a
60-million-tonne-per-year upgrade by Fortescue Metals Group
Ltd. in Western Australia. Brazils Vale SA also plans to
boost its Carajas output this year by 40 million tonnes
A version of this article was first published by AMM sister
publication Steel First.