Rising Iron Ore Prices Pose Challenges to Steel Industry Recovery

SHANGHAI, Feb 22 (SMM) - Iron ore is one of the important raw materials for the steel industry, but domestic iron ore supply mainly relied on imports. Statistics show that China's imported iron ore has accounted for 80% for many years.

The distribution of iron ore in the world is relatively concentrated. According to statistics, the world's available iron ore reserves are about 180 billion mt, of which Australia has the largest reserves with about 51 billion mt, accounting for about 28.33% of the world's total reserves. Brazil, Russia and China have reserves of more than 70%.

Due to the insufficient supply and low grade, China’s iron ore supply is highly depended on imports.  China's imports in December 2022 stood at 90.86 million mt, a decrease of 8.08% month-on-month, but an increase of 5.56% year-on-year. The imports totalled 1.11 billion mt in 2022, a month-on-month increase of 8.93% and a year-on-year decrease of 1.5%.

China's iron ore imported from Australia and Brazil reached 59.8124 million mt and 20.0663 million mt respectively in December 2022, accounting for about 66% and 22%. The rise in iron ore prices increased the concentration of the supply side. It is expected that China will remain the world's largest importer of iron ore in the next 5 to 10 years.

The rapid and sharp rise in iron ore prices has brought multiple impacts on downstream industries. Firstly, the production costs of the steel industry has been greatly increased as the iron ore prices accounts for more than half of the production cost of steelmaking. Secondly, the increase in cost will be transmitted downstream along the industrial chain, which may cause downstream price increases. Thirdly, the sharp rise in iron ore prices has eroded the profits of the real economy to a certain extent. Financial capital raises the prices of iron ore through financial pricing mechanisms such as futures and swaps. In fact, it transfers profits through price leverage, allowing the domestic real economy to subsidise overseas mines and financial capital.