LAUNCESTON, Australia- Asia’s steel and iron ore markets are trying to tread between China’s coronavirus lockdowns and the likely loss of exports from Russia and Ukraine.
The first factor is bearish for prices, as China’s steel output may fall on lockdowns in some producing areas, such as Tangshan, as well as the potential hit to economic growth.
The second could be both bearish and bullish, depending on how the conflict between Russia and Ukraine plays out.
Both are major steel exporters, with Russia shipping about 28 million tons in recent years, to rank just behind Japan, but some distance behind number one China, which exported 52.63 million tons of steel products in 2021, official data show.
Ukraine exports about 15 million tons of steel a year, ranking it eighth, and it is also the world’s fifth-biggest shipper of iron ore, although its volumes are small compared to the top exporters, Australia and Brazil.
Ukraine exported 21.26 million tons of iron ore in 2021, according to Refinitiv research, or about 2.5 percent of the 884 million tons that Australia shipped.
Since Russia’s invasion of neighboring Ukraine on Feb. 24, international buyers have been pulling back from purchases of its steel, although it is likely to take several months before the full impact of the self-sanctioning becomes apparent.
Ukrainian shipments are also affected, given the proximity of fighting to some major ports, meaning ship owners, insurers and traders will be reluctant to lift cargoes.
This would appear bullish for prices of both iron ore and steel, given the likely tightening of supply, especially in Europe, which bought most of the supplies from Russia and Ukraine.
But it may also result in more Russian steel being diverted to Asia, as exporters seek new markets for products no longer being purchased by Europeans.
This may roil Asia’s steel markets, especially if Russian products are offered at steep discounts to those from the region’s more usual suppliers, China, India, Japan and South Korea.
Conversely, Asian exporters may find new opportunities to ship to Europe, especially if European steel mills are constrained by rising energy costs from boosting their own output.
Overall, the impact of Russia’s likely exclusion from much of Europe’s steel market will be felt in Asia as well, and a re-aligning of trade flows is expected.
Much will also depend on China’s future steel demand, which in turn will be determined by how long the current lockdowns last, and whether higher stimulus spending follows, as Beijing seeks to rebuild economic momentum.
