Price of Iron Ore Plummets as China Cuts Back on Steel Production

During the last weeks of December 2020, China’s benchmark iron futures decreased after the nation called for the steel industry to manufacture less crude steel this year. The objective of this is in line with the Chinese government’s carbon neutrality plan.

Last year, prices of iron ore more than doubled, which set the ore that is used to make steel on track to becoming the top-performing major product in the world for the second year in a row. This came at a time when Chinese demand stands firm and speculative money was being received by the market.

Despite this, however, the Ministry of Industry and Information Technology urged the steel sector to purposely decrease the output of crude steel and make sure that an annual decrease was registered this year. Dalian Commodity Exchange’s most active iron futures gained 37.8% during the last quarter of 2020, having gained 21.5% last month alone.

China was the biggest producer of steel in the world, producing 1.1 billion tons of steel last year. Between 2016 and 2020, the country has discontinued 150 million tons of yearly production capacity.

China International Trust Investment Corporation told Reuters that a further decrease in output would further improve the demand-and-supply situation of the country’s steel sector. This would resolve issues of deformed profits caused by high prices of raw materials. The corporation added that managing steel production would help protect the profit margins of mills while preventing high prices from moving into the downstream sectors.

For May delivery, the futures traded on the Dalian Commodity Exchange the most closed down 3.5% to 984 yuan, or approximately $150, per ton. This figure was the lowest that had been recorded in close to a month.

After losing 4.7% in early trade, futures of coking coal decreased a further 3.3% to 1,641 yuan a ton. On the other hand, futures of Dalian coke dropped by 0.1% to 2,822 yuan per ton.

In September 2020, President Xi Jinping of China had announced that the country planned to go carbon neutral by the year 2060. China is currently the world’s biggest emitter of greenhouse gases as well as the biggest consumer of energy. The country is also the lead importer of both natural gas and oil. In addition to this, China also mines and burns half of the coal produced worldwide.

Sanford C. Bernstein & Co approximates that transitioning the economy of China to carbon neutrality in four decades may cost $5.5 trillion.

Back in the United States, several mining firms are having a good run. For instance, Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) uses two different technologies to extract uranium at three facilities located in Utah, Wyoming and Texas.

NOTE TO INVESTORS: The latest news and updates relating to Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) are available in the company’s newsroom at http://ibn.fm/UUUU

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