Commodities Roundup: Iron Ore Prices, Steel Demand and Steel Capacity Utilization

For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets.

We scour the landscape for what matters — from price movements to policy decisions. This week:

Iron Ore Prices

Iron ore prices have received several supply-side boosts in recent months, leading MetalMiner’s Stuart Burns to speculate on whether the steelmaking raw material is on its way to the $100 per ton mark.

“Demand is at its seasonal peak as the weather warms in China and construction work begins in earnest, pushing up steel futures by more than 3% in early April,” Burns noted. “According to Reuters, the most-active construction steel rebar contract on the Shanghai Futures Exchange recently rose as much as 3.6% to 3,710 yuan ($552) a ton, its highest since Aug. 22, while hot-rolled coil jumped as much as 3.4% to 3,955 yuan a ton ($588).”

Last month, tropical cyclones impacted iron ore flows as a result of damage to port terminals in Western Australia. In addition, Vale’s ongoing supply crunch — on the heels of a fatal dam collapse in January at one of its mines in Brazil — continues to put a clamp on supply of the steelmaking raw material.

However, Burns argues some elements of iron ore’s rise might not necessarily continue.

“Weather-related disruption, however, is temporary and steel demand will ease once restocking is fulfilled,” Burns explained. “Unless infrastructure spending surprises on the upside, current demand is not sufficient to drive steel prices and iron ore demand much higher.

“Will the S&P Global Platts 62% Fe IODEX benchmark break through $100/dmt CFR North China this spring? Bulls would have us believe it is possible.

“Iron ore has surprised on the upside, but the underlying fundamentals make such a proposition look doubtful. An easing of prices in Q2 and Q3 is more likely.”

Speaking of iron ore, miner Rio Tinto recently downgraded its 2019 guidance on the heels of the aforementioned tropical cyclones.

Rio’s new 2019 guidance for Pilbara iron ore shipments comes in between 333 million and 343 million tons, shifting down from its previous estimate of 338 million to 350 million tons.

Norsk Hydro to Upgrade Husnes Plant

Norwegian aluminum maker Norsk Hydro recently unveiled plans to upgrade its Husnes plant with an investment of NOK 150 million (U.S. $17.6 million) toward manufacturing of automotive aluminum.

New low pressure casting technology is expected to debut at the Husnes plant in 2020.

Steel Demand Growth Slows

Steel demand around the world is still growing, but growth levels are expected to moderate this year and next, according to the World Steel Association.

The World Steel Association’s recently released Short Range Outlook forecasts global steel demand will increase 1.3% this year and 1.0% in 2020, down from 2.1% in 2018.

China’s steel sector is currently getting a boost from government stimulus measures. However, the World Steel Association report forecasts a minor contraction for Chinese steel demand as stimulus measures subside next year.

Steel demand growth in developing countries is forecast to hit 0.3% this year, down from 1.8% in 2018.

U.S. Steel Production

U.S. raw steel production continues to chug along at levels exceeding last year’s, with production for the year through April 13 up 6.8% compared to the equivalent period in 2018.

Steel mills in the U.S. produced 28 million net tons of steel in the year to date (through April 13) at a capacity utilization rate of 81.9%, marking a 5.5-percentage-point increase compared to capacity utilization for the same period in 2018 (76.4%).