Benchmark iron ore to end 2021 with 12% plunge amid China climate efforts

The most actively traded iron ore futures contract on the Dalian Commodity Exchange, for May delivery, traded in a thin range on Friday, on course for a 12% drop in 2021.

After nearly quadrupling in 2019 and more than tripling in 2020, prices for the key ingredient climbed to a record 1,239 yuan ($194.34) a tonne on May 12, fuelled by robust steelmaking demand.

That concerned authorities as China relies on imports for more than 80% of its iron ore, mainly from Australia and Brazil.

To boost its iron ore pricing power, China has amended trading rules at exchanges, encouraged inputs of more steel scrap, ramped up domestic production and explored overseas assets.

But prices only started to fall in the second half of the year when the government ordered that output at steel plants be slashed to reduce carbon emissions and other pollutants from the ferrous sector.

China’s iron ore imports fell 9.6% over June to November from the same period a year earlier. The product prices on the Dalian bourse dived 42% during those months.

Other raw materials
Dalian coking coal and coke futures are set to rise in 2021, despite slumping from records earlier this year.

Apart from easing downstream demand, prices of the raw materials were also pressured by a widespread power crunch in September to October and government interventions to alleviate the issue.

Meanwhile, the continuing restriction of coal imports from Australia and the unstable pandemic situation in Mongolia have left the supply-side of metallurgical coal unstable.

Coking coal futures are set to surge over 60% in 2021, with coke prices heading for a 22% gain.

Steel prices stall
China vowed to keep its 2021 crude steel output below the record 1.065 billion tonnes it made last year, which was seen as impossible by the sector amid a construction boom and manufacturing mania. That helped shore up steel prices throughout the first three quarters of 2021.

However, an unexpected debt crisis at property firms in the last quarter spilled over into the ferrous sector, raising concerns about future demand if China tries to wean itself off construction stimulus.

Futures for steel rebar, used in the construction sector, on the Shanghai Futures Exchange are set to rise 3.6% this year.

Hot rolled coils, used in cars and home appliances, headed for a 5.7% increase.

Shanghai stainless steel futures, underpinned by raw material nickel prices, were on course for a near 50% increase.