16:32Nov 26, 2021MT Newswires

China Demand Boosting Iron Prices But 2022 Outlook Sees Price Risks, RBC Economics Reports

Chinese demand for steel is propping up iron prices as the country boosts infrastructure spending to compensate for an economy where the property sector is struggling, RBC Economics said in a Friday report. However the bank sees lower demand coming in 2022, moving price risks to the downside.

"Steel production in China is currently annnualising at 2017 levels, or about 775mt finished steel demand," RBC Economics noted. "We forecast 905mt for 2022, down 6.8% vs. 2021, driven by a 20% drop in property consumption - hardly in our view an aggressive assumption considering the recent change in underlying property dynamics. With new starts down 33% in October, an acceleration of activity is required to reach even our below-consensus forecasts. Iron ore port inventories have also grown rapidly, now at c. 150mt and annualising at c. 130mt of build, not that far from our global iron ore surplus expectation for 2022. Production is falling away from the market fast, with Rio Tinto, Vale, India and domestic Chinese production all contributing, but we still calculate a c.80mt surplus adjusting for this supply loss.With Chinese policy having rapidly pivoted before, we are keeping an open mind the economy in the new year; however, at this point, we continue to see much sharper risks vs. expectations."