Easing curbs in Tangshan would help stabilize iron ore prices
Published: Jun 01, 2021 08:33 PM
Illustration: Xia Qing/GT

Illustration: Xia Qing/GT


The steelmaking city of Tangshan in North China's Hebei Province reportedly plans to ease restrictions on steel production. The local authorities held a symposium on Monday, mulling over plans to lower output curtailment ratio for some mills that had completed ultra-low emission upgrades, according to media reports.

Should Tangshan implement the plan to ease production cuts, it would be an adjustment from the production limits that were implemented in March. At the time, several local steel mills were required to curb production as part of efforts to reduce pollution. As some enterprises have completed the evaluation of ultra-low emission transformation, it is normal market adjustment to increase industry production. However, this does not mean that China will relax its environmental protection efforts.

Since the beginning of this year, the prices of some bulk commodities have risen sharply, with the prices of some varieties hitting record highs. The iron ore futures on the Dalian Commodity Exchange has been surging from 920 yuan ($144.2) a ton at the beginning of April to the peak of 1358 yuan a ton on May 12.

The accelerated influx of financial capital into the bulk commodity market has caused excessive speculation, driving the prices of bulk commodities higher, which may lead to inflation in consumer prices. Therefore, stabilizing the continuously skyrocketing commodity prices is now viewed as vital to China's economic recovery.

The relaxation of production restrictions in Tangshan iron and steel industry is the latest example of taking market-oriented means to adjust the market's balance and stability. Easing restrictions on iron and steel production in Tangshan at this point can rebalance the supply and demand structure which will increase effective supply and stabilize prices of steel, which will further stabilize the price volatility of iron ore and curb market speculations.

The combination of crackdown on speculation and market irregularities and more efficient market-oriented measures in iron and steel industry will bring the price of iron ore back to a normal level. According to a report from Capital Economics, Iron ore prices could drop back to around $140 per ton by the end of 2021, and $120 per ton by end of 2022 as the market shifts into a surplus.

To maintain market stability, China is expected to continue diversify its imports sources of iron ore. According to statistics of our research, China's iron ore imports from Australia accounted for the proportion of total imports of China fell from 68.4 percent in 2019 to 60.93 percent in 2020. As of this April, the percentage had fallen below 60 percent.

The author is research director at the Beijing Lange Steel Information Research Center.