Will the "falling" iron ore drag down the steel price?

The one-day decline was close to 7%, with the lowest falling to around 720 yuan / ton. The price of high-grade mineral powder in the spot market fell sharply, and the price of inbound card powder fell to around 1100 yuan / ton... The iron ore price, which rose most strongly in the first half of this year, continued to fall after entering the second half of this year, and has now reached a new low in the last 14 months.

Iron ore prices are in a doldrums, mainly due to the steady progress in the reduction of crude steel output in the domestic steel industry. The shrinkage of the steel supply side has effectively blocked the iron ore demand space, and the iron ore futures market has seen a strong mood. The spot market has also opened a "high diving" market, squeezing the irrational price rise of iron ore prices in the first half of this year.

Then, will the "falling" iron ore "drag down" the upward pace of steel prices in the peak season? In my opinion, not in the short term. In the long run, it still depends on the space for continuous correction of iron ore price.

Firstly, the supply-demand game under the expectation of limited production in the current peak season is the main line driven by the market, and the cost factor plays a more driving role. In particular, after iron ore became a new strong black variety in the second half of the year, the price of "double coke" (coke and coking coal) has started the 10th round of increase, with an increase range of 200 yuan / ton. The rising speed of "double coke" price is actually higher than that of iron ore price correction, so the steel cost platform does not have the conditions to move down in depth in the short term, and the impact of iron ore price correction on steel price is relatively limited.

Secondly, in terms of absolute price, although the current iron ore price has fallen significantly, it is still at a relatively high level and there is no oversold. According to the latest statistics of the General Administration of customs, the average import price of iron ore in August was 207.59 US dollars / ton, and the average import price of iron ore in the first eight months of this year was 178.25 US dollars / ton. This shows that although the iron ore price has been weakly adjusted, the absolute price is still relatively high. Taking Platts 62% grade iron ore index as an example, the price as of September 10 was 128.8 US dollars / ton, which is still far from the lowest point of 79.8 US dollars / ton in 2020. Therefore, the supporting effect of iron ore on the steel cost platform has not been broken due to the market correction.

At present, it is difficult for iron ore price to "drag" the upward trend of steel price for the time being, and the impact of iron ore price trend on steel price will be quickly digested by the market. In addition, in the face of the continuous record high price of "double focus", relevant national departments have taken measures to control it. In the later stage, once the "double coke" price has an inflection point and resonates with the iron ore price, the market will really face the test of cost decline, and the possibility of high decline in steel price cannot be ruled out. Under the background of "downsizing" of steel enterprises' production, the demand for iron ore has fallen sharply, and the price of iron ore will mainly fall by shock, and will continue to return to the region with reasonable price in the future.