Summary of the Conference Call on Global Metals & Mining Industry Overview - The focus is on the steel industry in China and its implications for iron ore demand globally. The discussion revolves around the anticipated Supply Side Reform 2.0 in China, which is expected to lead to a reduction in steel production and exports from China. Key Points and Arguments Supply Side Reform 2.0 - Supply side reform 2.0 is likely to result in a 5% supply curtailment in steel production in 2025, leading to a gradual rebalancing of the steel market, which should support average selling price (ASP) uplift and margin improvement [2][41] - A reduction of 50 million tonnes in steel production in China could lead to a decline in steel exports by the same amount, which would be beneficial for steel margins outside of China [2][10] Impact on Iron Ore Demand - The impact of a shift in steel production from China to other countries on iron ore demand is estimated to be around 15 million tonnes, which is approximately 1% of the global seaborne iron ore market [3][20] - Steel production outside of China is less iron ore intensive, with 66% of steel production globally using iron ore compared to 85% in China [3][18] Correlation Between Iron Ore Prices and Steel Margins - In the short term, iron ore prices are more correlated with steel producer margins than with steel production rates. If production cuts in China lead to higher margins globally, this could support iron ore prices [4][26] - The premium for higher-grade iron ore is also expected to rise as steel producer margins increase, potentially offsetting any small declines in base iron ore prices [4][33] Risks from Simandou - The Simandou project poses a significant risk to global iron ore prices, with an expected capacity addition of 120 million tonnes over the next few years, which represents a 7% increase in the global seaborne iron ore market [5][39] Inventory Levels - Iron ore inventories at Chinese ports have remained steady at around 150 million tonnes, while steel mill inventories are at approximately 20 days of use. Overall, iron ore inventories in China are estimated to be around 60 days, compared to a 15-year average of 51 days [43][46] Government Policy Changes - The Chinese government has shifted its stance on steel production, moving from avoiding "rat-race style competition" to actively rectifying it, indicating a more aggressive approach to supply reform [40][41] Conclusion on Iron Ore Prices - The conclusion drawn is that significant declines in iron ore prices are only likely under specific circumstances related to a decline in steel demand, both in China and globally. However, even in such scenarios, iron ore prices may have been due for a decline regardless of the supply side reform [11][39] Additional Important Insights - The steel industry is considered a pillar of the Chinese economy, and the government is focused on optimizing the structure and improving the quality of production [40][41] - The anticipated changes in policy and production levels are expected to have a long-term impact on the dynamics of the steel and iron ore markets, with implications for global pricing and production strategies [39][41]
中国钢铁行业供给侧改革 2.0：铁矿石何去何从