[Crude Steel Scrap Price Plunge] Iron Ore Falls Below $100... Steel Industry Enters Crisis Management

[Image source=Yonhap News]

[Asia Economy Reporter Jeong Dong-hoon] Iron ore prices have fallen below $100 per ton for the first time in seven months. According to the Ministry of Trade, Industry and Energy's raw material price information on the 25th, the price of iron ore in North China (CFR) was $96.4 per ton (approximately 126,370 KRW) as of the 21st. Iron ore prices had already dropped to $96.6 per ton on the 15th, falling below $100 for the first time since December last year.

During the same period last year, iron ore prices exceeded $200 per ton. This was passed on to steel product distribution prices. This is why the steel industry was able to record record-breaking performance over the past year. However, after one year, the industry is now facing concerns of a 'peak-out' (a decline after reaching a peak).

Chinese steel mills, which account for nearly half of the world's steel production, are also expected to further reduce production in the second half of the year. Following the Chinese government's production restriction policy, the annual production cut target was achieved in the first half of this year as well. The world's largest mining company, Vale, also lowered its iron ore production forecast for this year from 320 million to 335 million tons to 310 million to 320 million tons this month.

A sense of crisis is spreading in the domestic steel industry as well. On the 21st, POSCO Group held a group management meeting chaired by Chairman Choi Jeong-woo, attended by presidents and all executives within the group, and decided to establish an emergency response plan for the entire group and enter an emergency management system. Chairman Choi said, "Each group company's management must further strengthen cash-centered management to ensure that cash flow and funding situations do not become problematic."

International oil prices have also shown a downward stabilization trend, raising concerns about poor performance among oil refiners that recorded record-breaking results in the first half of the year. Since the beginning of this month, international oil prices have fallen below $100 per barrel. West Texas Intermediate (WTI) was $94.7 per barrel as of the 22nd, marking the lowest level since the Russia-Ukraine war began. This is a 23% drop compared to the $123.7 recorded on March 8, the highest price of the year.

The driving force behind the decline in international oil prices is interpreted as the impact of economic slowdown. The Organization of the Petroleum Exporting Countries (OPEC) forecasted that the growth rate of oil demand next year will slow compared to this year. In the July Oil Market Report, it was expected that oil demand this year would be 100.29 million barrels per day, an increase of 3.36 million barrels from last year, while next year it would increase by only 2.7 million barrels to 102.99 million barrels per day.

In particular, concerns about poor performance among refiners are spreading as refining margins have sharply deteriorated. As of the 21st of this month, the Singapore complex refining margin was $2.71, marking the lowest level of the year. The breakeven point for refining margins is generally considered to be $4 to $5. If this situation continues, domestic refiners are also expected to face unavoidable production cuts.