China's steel production may have peaked. Iron ore is affected by freight costs and geopolitical risks. Cost advantage is the key (J.P. Morgan)
The report shows that China's annualized crude steel output in the latest 10 days reached 996Mt.
The report shows that China's annualized crude steel output in the latest 10 days reached 996Mt. Although it increased by 3% month-on-month, it was overall at the bottom of the historical seasonal range. J.P. Morgan predicts that steel production may have peaked in 2026. Affected by the situation in the Middle East, bulk carrier freight rates increased by 9% week-on-week, leaving iron ore FOB prices still lower than pre-war levels. The report suggests that Anglo American and Kumba Iron Ore are facing profit margin pressure due to their greater exposure to freight rates on the Brazil and South Africa routes. The market's attention to iron ore is mostly focused on the demand side, but the report keenly points out that rising freight rates caused by geopolitics are reshaping the competitive landscape of different producers from the cost side. One sentence conclusion: The "volume" of steel is no longer a story, and the "cost" of iron ore is diverging due to geopolitics. Whoever can control freight costs will win in the next round of competition. Positive/negative: Negative: Anglo American and Kumba Iron Ore, which have large freight exposures. It is relatively beneficial to miners with shorter transportation distances and better control over costs (such as Rio Tinto and BHP Billiton). The market has expectations for the iron ore price itself, but may not adequately price the cost differentiation caused by freight fluctuations. Catalysts: 1) Monthly changes in the situation in the Middle East and bulk freight rates; 2) Whether China's crude steel production data declines further; 3) Quarterly cost reports from major mining companies to verify changes in profit margins.