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RESEARCH: Key takeaways from the latest Steel Raw Materials Market Tracker

Apr 16, 2020 | 10:45 AM | London, Miami | Alona Yunda, Miriam Falk, Amy Bennett, Alexander Kershaw

Tags  iron ore, coking coal, ferrous scrap, pig iron

The latest forecasts from Fastmarkets’ team of analysts are ready to view.

While downward pressure mounts on steelmaking raw material markets, premiums for higher-grade iron ore have been sustained despite narrowing operating margins at Chinese steelmakers.

Chinese mills have been operating with shrinking margins since the end of last year, but the premium for high-grade ore remains high. Historically, the two factors tend to move in the same direction, with mills focusing more on cost efficiency when they are making less money for each tonne of steel produced. Once their operating margins pick up, however, they are more inclined to purchase higher-grade material to optimize their blast furnace production rates.

Since the start of this quarter, this usual pattern has been broken - supply woes provided support for 65% Fe fines prices and, consequently, for premiums over the 62% Fe benchmark.

Following the coronavirus pandemic, nations across the world have implemented lockdowns at an unprecedented rate and the unforeseeable nature of the pandemic is adding uncertainty about supply, not only from Brazil but also India and Australia. Even though there might not be major shortages, miners have already reported staff having been infected, and operating with fewer workers can also impact the output.

The Brazilian volumes have not yet recovered to pre-disaster levels seen before the Brumadinho tailings dam burst; any potential disruptions will, therefore, provide strong upside support to the premium for Brazilian fines.

In the coking coal market, the Indian lockdown, on the contrary, drove prices lower - business activity at the major spot buyer has been disrupted. Thus, Australia-origin hard coking coal prices declined to the lowest levels in the market since August 2016.

Although supply woes had supported metallurgical coal prices earlier in the year, the focus has now shifted to the demand-side issues. While Indian demand has been under pressure from the nationwide lockdown, demand from another major importer, Japan, has also been weak due to production cuts implemented by mills.

And although a recovery in China's business activity is set to provide support for metallurgical coal demand, especially at currently attractive price levels, weak buying activity elsewhere puts pressure on prices. And in the longer run, Australia's greater reliance on China might adversely affect prices.

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