Iron ore prices struggle at multi-year lows in a 'challenging' global environment

China remains the world's largest steel producer as well as consumer. In 2023, China accounted for about 54 percent of global steel production, and consumed about 51 percent of the global output.

After giving up the $100 per tonne mark earlier this month, international iron ore prices slipped to trade near $90 on September 5 as Chinese economic continues to struggle, leading to a situation of over-supply in the global market.

Prices of iron ore have been slipping this year, down more than 33 percent, to test multi-year lows as domestic consumption from China remains weak, with no sign of any recovery. Singapore iron ore futures tested the lowest level since November 2022, and are already down 10% this week.

Steelmakers in China are in the middle of a multi-year slump in construction business, as demand has dried up, thus forcing players to compete for clients, and the in process create an over-supply which is finding its way into other major markets in India and USA. A Goldman Sachs note recently said it sees a 'challenging environment for iron ore' in the near term.

Already, the government has taken cognisance of concerns raised by the industry over intensified dumping of steel from China, and other producers. In August, DGTR initiated an inquiry into the surge in steel imports from Vietnam. Speaking at an industry event, Commerce Minister Piyush Goyal assure the government will do 'whatever it takes, to get the steel industry rocking again.' Minister asked for suggestions to curb 'irrational imports', and regretted that Indian industry is not buying enough domestically produced steel. "Korea and Japan prefer their own steel plants, even at times of higher costs. Sadly, many of friends from our industry don't have a similar approach," Piyush Goyal said.

Minister of Heavy Industries HD Kumaraswamy has already said at a public event that he will push for higher tariffs on Chinese steel import, and try to convince the Finance Ministry to raise import duty to over 12 percent from the current 7.5 percent.

India's steel makers too have raised these concerns in recent past. JSW Group managing director Sajjan Jindal said in July that rising Chinese imports were affecting margins of domestic steelmakers. "Several countries have raised barriers against steel imports, and the Indian steel industry is engaged with the government to ensure a level playing field."

JSPL chairman Naveen Jindal has however said that a 10-12 percent duty on steel imports will not be enough to fight the ‘predatory’ dumping by China, as quoted by CNBC-TV18.

However, analysts believe this duty hike is unlikely to be enough to offset the lure of cheaper imports from China. "In order to bring parity, the duties need to rise to 17-18 percent, only then will the premium fall to zero", Aditya Welekar, Senior Research Analyst at Axis Securities told CNBC-TV18.

China remains the world's largest steel producer as well as consumer. In 2023, China accounted for about 54 percent of global steel production, and consumed about 51 percent of the global output. Progressively, Chinese steel makers are trying to shift their product portfolio away from construction to cater to the demand of transportation sector, according to a McKinsey analyst, who spoke to the China Daily. The green and low-carbon steel has also been a requirement that steelmakers are trying to cater. "By the end of June, 140 steel enterprises with over 600 million tons of crude steel capacity had completed or partially completed ultra-low emission transformations and passed our evaluations," China Iron and Steel Association (CISA) said.