South China Metals Summit 2019: Iron ore prices to reach $75-80/mt in 2020

FOSHAN, Nov 7 (SMM) – Iron ore supply is expected to increase by 67 million mt and the average iron ore prices are expected to reach around $75-80/mt, pointing to weaker cost support to steel prices, according to SMM Chief Steel and Iron analyst Wang Bei.

Speaking at the SMM South China Metals Summit 2019 in Foshan, Guangzhou recently, Wang expects iron ore supply to increase 67 million mt, pointing to weaker cost support to steel prices. Production in China and the four majors overseas miners (Vale, Rio Tinto, BHP and FMG) is estimated to rise 2.78% and 5.11%, respectively in 2020.

In the near term, she sees steel prices in Chinese markets are likely to stabilise or rally, in anticipation of production curbs in the smog season. Low inventories, robust demand and improved market sentiment following the People's Bank of China recent cut in a key load rate will also help to lift steel prices.

Wang cited the government’s push for aging residential areas renovation as a new driver of steel demand, as Beijing is scaling back the spending in shantytown redevelopment projects. Investment in the renovation of old residential areas is estimated to exceed 4 trillion yuan. Counter-cyclical economic adjustments, meanwhile, will boost infrastructure.

On the side note, Wang also expects more blast furnace to be replaced next year, increasing steel capacity. China plans to build 232 million mt of blast furnace capacity in 2019-2025, with 79.05 million mt or 34.1% to come online in 2020.

Furnaces will be bigger in size and more efficient, from smaller than 1,000 m³ to 1,000-3,000 m³, indicating higher output from the same volume of capacity, 

In the seven-year period, 157 units will be put into operation, with 59 units or 37.6% in the coming year. Wang expects China’s crude steel production to grow 1.8% to 1.015 billion mt in 2020.

For metallurgical coke outlook, Wang sees a weaker outlook as inventory level will remain high, and the fundamentals will be weaker than in 2018, and low prices will "be the norm" for the year ahead, which will weaken the support for steel prices.