May 13, 2017 2:00 am JST

Prices for iron ore, coking coal continue their descent

Cheap material prices likely to hurt steelmakers' negotiating position

Iron ore production in Australia

TOKYO -- Prices of two key steelmaking materials have softened over the past few months, likely putting Japanese steel manufacturers in a weaker position to negotiate higher product prices.

Australian spot prices for coking coal, a benchmark for the commodity, now hover around $170 a ton, far down from April's high exceeding $300. A cyclone ripped through Australian coal country in late March, incapacitating coal trains. That forced steel mills in India and elsewhere to procure coking coals on the spot market. But Australian coal train services were restored in late April, and exports are due to recover in June.

Due to that relaxed outlook, "Asian steel mills are pulling back from spot procurements," said a source at a major Japanese trading firm. The U.S., Russia and Canada are also stepping up coking coal production. The price could fall as far as the production break-even level of $150 per ton, said Prakash Sharma, research director at the British analytics firm Wood Mackenzie.

Iron ore has also dipped below $60 a ton, falling 40% since the latest peak in February. In China, steel prices have gone south due to the weaker market. The excess iron ore inventories at steel mills and traders also point to softer price trends.

Not only have Chinese new car sales receded in April, real estate development is starting to lose steam. Interest rates in the Chinese bond market have risen on speculation that the government will move to tighten financing. The belief is spreading that real estate developers will shrink back from funds procurement, which will eat into demand for steel.

When iron ore prices were climbing, miners were moving to boost output, even in India and Iran, where production costs are high. Now several analysts see all but the biggest players with ample cost competitiveness being forced out of the market.

For Japanese steelmakers, cheaper raw material prices will have the benefit of curbing costs and lifting earnings. On the other hand, these companies are still in the middle of negotiating higher prices for steel products. Lower material prices will give the other side more leverage to resist. Although demand for steel sheets is brisk, shipments of construction steel have slowed.

(Nikkei)  

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