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Steel price rally seen under threat

On global supply revival.
Image: Udit Kulshrestha/Bloomberg

The surge in global steel prices may be under threat as output increases across the world and top producer China steps up exports, according to India’s biggest steelmaker by market value.

Steel rebar and hot-rolled coil futures have jumped by more than 30% in the past year in China, driven by robust local demand and as iron ore prices rallied to multiyear highs. However, China’s steel rebar and iron ore inventories have both turned higher, signaling that construction activity may have eased amid expectations that government spending on the sector may be reined in following a recovery in the economy from the pandemic.

“Steel prices will be healthy,” for about two more quarters, Seshagiri Rao, joint managing director at Mumbai-based JSW Steel Ltd., said in an interview. After that, “when more and more supplies come in from the rest of the world and China increases its exports, that is the time you will see pressure on prices.”

Shares of JSW have rallied more than 45% in the past year and the company on Friday reported its best quarterly profit in nearly three years on the back of the surge in steel prices and recovery in demand locally.

Still, higher production costs are a worry as iron ore prices may not correct much in the short- to medium-term and the recovery in demand for coking coal will also push up prices of the key ingredient, Rao said. While iron ore prices have been volatile lately due to several supply-side disruptions, they are likely to decline to about $125 a ton this year “mainly because China is expected to buy less in 2021,” he said.

© 2021 Bloomberg

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