The article highlights a significant shift in the iron ore market, with prices surging from $90 per ton at the start of September to $120 by the end of the month—an increase of around 30%. In November alone, iron ore imports hit an all-time high of over 65 million tons, putting pressure on the steel industry, which has only recently returned to profitability. The rising costs and volatile market conditions have raised concerns about whether "crazy stones"—a term used to describe extreme price fluctuations—might return.
Industry experts, however, remain relatively calm. At the recent “My Steel†annual meeting, Zhang Changfu, secretary-general of the China Iron and Steel Association, noted that China’s crude steel output is expected to reach 723 million tons this year, up about 3% compared to last year. For next year, the growth rate is projected to slow to just 2%, signaling a long-term trend of lower expansion in the sector.
Despite this slowdown, iron ore production from major mining companies like Rio Tinto and BHP Billiton has surged. In the first three quarters of this year, Rio Tinto’s output rose by 30%, while BHP Billiton increased its production by 10%. Gao Bo, a senior researcher at “My Steel,†predicts that global new mine production will reach approximately 100 million tons next year, leading to a potential oversupply in the market.
Although the risk of a repeat of the “crazy stones†phenomenon seems low, the challenges for Chinese steelmakers have not disappeared. One key issue is the sharp volatility in iron ore prices. This year, steel prices have dropped by only 20% from their peak, but iron ore prices have fallen by more than 40%. This erratic movement makes cost management for steel mills increasingly complex.
“A single-direction price rise is easier to handle, but when prices jump up and down rapidly, procurement becomes much more complicated,†said a source from a steel company. Two critical figures highlight the dilemma faced by steel mills:
First, iron ore port inventories have declined from a peak of 100 million tons to over 80 million tons today. While lower inventory levels help avoid losses during price drops, they also force steel mills to be more agile in responding to market swings.
Second, trading in iron ore derivatives has become increasingly active, with financialization accelerating. As of now, overseas iron ore swap transactions are close to 100 million tons, with 60% involving financial institutions and some international investment banks engaging in speculative activities. Domestic steel mills, however, account for only 5% due to restrictions on overseas risk management.
In response to the growing risks of two-way price fluctuations, various stakeholders are actively seeking solutions. During the fourth quarter, the National Development and Reform Commission held a meeting and emphasized that with the increasing availability and diversification of iron ore supply, as well as the rapid development of pricing mechanisms, the conditions for promoting iron ore in China are gradually maturing. A consensus is emerging around the idea of pushing forward reforms sooner rather than later.
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