According to GMK Center, amid the economic weaknesses in Turkey and the EU, the global steel market is experiencing a cyclical decline, with prices down 15-40% since the beginning of the year. This has led to reduced margins for steelmakers, making it difficult for them to maintain operations and compete globally.

European plants are reducing production, laying off workers, and seeking government assistance. Market participants are keen to know how long this situation will last and whether raw material price dynamics will improve the steel companies’ situation.

Iron ore prices traditionally depend on steel production dynamics in China, influenced by the state of the Chinese economy. The Chinese government has implemented measures to refinance local government debt, positively impacting infrastructure investment. Further stimulus measures are expected, including a program to refinance hidden debts and a new stimulus package.

Despite these measures, China’s domestic steel consumption and overall economic development are unlikely to see radical changes. China has been experiencing deflation for six consecutive quarters, with stagnating industrial production. Weak domestic demand has led to excessive steel production capacity, resulting in surplus products being exported globally. China’s steel exports in 2024 are likely to exceed the record level of 2015.

The decline in steel production in China is inevitable, with government and central bank measures only mitigating the decline. In the coming months, these incentives will support steel production in China, keeping iron ore prices above $100 per tonne. In the long term, with a good supply of iron ore and declining steel production in China, prices are expected to gradually decline, with an average price of $95/t next year.

Scrap could compete with iron ore to some extent, but the current price dynamics suggest a challenging market environment for steelmakers.