As China announced plans to reduce steel production, expectations have emerged that the price of iron ore, a raw material, will weaken. The domestic steel industry is concerned that the decline in iron ore prices could lead to demands for lower product prices, negatively impacting revenue.
According to the steel industry on the 11th, as of the 3rd, the price of iron ore was traded at $100.98 per ton (t). The price of iron ore increased due to China's announcement of economic stimulus measures, rising from $97.16 in early January to $107.8, but has shown a decline for the first time in seven weeks.
Reuters reported that China announced plans to reduce crude steel production this year through a report from the National Development and Reform Commission, stating that the production would not exceed 1 billion tons this year. It was also interpreted that speculation of a reduction of about 50 million tons in crude steel production was leading to a drop in iron ore prices. China has exceeded a crude steel production of 1 billion tons every year since 2019, recording 1.005 billion tons last year.
Domestic and international institutions have anticipated that the price of iron ore will show weakness this year. Global financial corporation ING forecasted that the annual average price of iron ore this year will be $95. Market research firm Trading Economics predicted that the price of iron ore will trade at around $97.72 over the next 12 months.
The domestic steel industry, which has been facing dual pressure from low-priced Chinese steel and sluggish market conditions, is growing more optimistic about market normalization following China’s production cut announcement, but remains concerned that the steep decline in iron ore prices could lead to a drop in product prices. The steel industry periodically negotiates prices with major steel-demanding companies, such as shipbuilding and construction, and if iron ore prices fall, the demand companies will seek lower product prices.
In 2015, when the average price of iron ore fell to $55.96 per ton, a 43% decrease from the previous year, both POSCO and Hyundai Steel saw significant drops in profits. At that time, POSCO recorded an operating profit of 1.843 trillion won, down 24% from the previous year, while Hyundai Steel reported an operating profit of 1.4646 trillion won, a decrease of 1.8% from the previous year.
A source in the steel industry noted, "The decline in the price of iron ore, a raw material, may be positive in the short term, but if it continues long-term, it could become a factor leading to lower product prices," adding that "the production cut announcement from China could negatively impact the sharp decline in iron ore prices."