If you listen to some in the markets then the surge in iron ore prices for most of this year, and the record results for the likes of Rio Tinto, and those to come from BHP and Fortescue, are the where the boom starts and ends.
Vale, the big Brazilian miner, has also underlined that thinking with a record result for the June quarter.
However, many investors have forgotten that it’s a combination of factors behind the record iron ore prices and results for the big miners – a shortage at a time of strong demand, especially in China.
But it isn’t just China; demand is strong everywhere and that strong demand is coming from the forgotten group in the business, the steel mills.
Occasionally we are reminded of just how they have boomed (and making fools of those analysts and ‘experts’ who were forecasting their demise only a couple of years ago).
The six months to June saw the 64 member countries of the World Steel Association (covering 98% of global output) lift crude steel output 14.4% to a record 1.004 billion tonnes for the six months to June 30.
Output in China rose a slower 11.8% to 563 million tonnes – but will fall in the next six months as the Chinese government forces steel companies to cut production so that total yearly output comes in around 2020’s total of 1.065 billion tonnes.
Much of this is known, but what isn’t well understood is the immense profits the steelmakers are making.
Take a scattering of results and updates from big steel companies in the past week for the June quarter or year to the end of the same month.
Look at Australian producer, BlueScope Steel. On August 16, it will confirm its biggest ever profit of around $1.72 billion as sales boom (domestically and in the US) in the economic rebound from 2020’s pandemic driven lockdowns and dislocations.
The big question for BlueScope investors will be the size of the final dividend.
BlueScope says it is selling record amounts of steel into the Australian domestic market, in the US market (especially got rolled coil), in New Zealand and in parts of the Pacific.
Even the company’s Chinese business is doing well (being a processor not a maker). Coke exports are also strong.
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It is a similar story from the Chinese steel industry – the drivers of the record prices and demand for iron ore.
Data from China’s steel industry association this week showed the astounding surge in revenue and earnings for that country’s 20 biggest steelmakers.
The top companies include Baoshan Iron and Steel and its parent China Baowu Iron and Steel Group, Hesteel Group, Jiangsu Shagang, Angang Steel, Beijing Shougang and Shandong Iron and Steel.
The China Iron and Steel Association said the combined first-half profit of China’s 20 largest steel manufacturers surged 220% year-over-year to 226.8 billion yuan ($US35.05 billion),
Their combined revenue rose 51.5% to 3.459 trillion yuan ($US534 billion) from a year ago, while their profit margin doubled to 6.56% from 3.09%.
China’s crude steel production during the first half rose 11.8% to 563 million tons despite efforts by Beijing to cut the country’s crude steel output this year under its climate goals.
Steel exports jumped 30.2% to 37.4 million tonnes, while imports inched up 0.1% to 7.3 million tonnes.
The government is introducing policies which will cut exports (but increasing export taxes) and boosting imports of finished and semi-finished crude steel and products.
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As big as the Chinese companies are, ArcelorMittal is the world’s largest steelmaker and last week it reported its highest earnings in 13 years for the three months to June.
And then company also said it had raised its forecast for the growth in global steel consumption this year to 7.5-8.5% from 4.5-5.5% previously.
ArcelorMittal said second-quarter core profit (EBITDA) of $US5.1 billion, almost seven times higher than $US700 million a year earlier.
Net profit was $US4.4 billion for the three months to the end of June compared with a loss of $US559 million for the same period of last year, and a profit of $US2.6 billion for the first quarter of this year.
That’s a net profit of $US7 billion for the first six months of this year ($A9.5 billion). That’s 20% of the total of the 20 biggest Chinese companies, underlining just how big ArcelorMittal is.
Sales nearly doubled to $US19.34 billion as steel selling prices rose and it boosted shipments.
The company is also a small iron ore miner and exporter. It produced and sold around 12 million tonnes in the first half of 2021 from mines predominantly set up to export. Many of its mines produce ore for internal consumption.
Crude steel production in the June half was 35.4 million tonnes, down a fraction from the 35.5 million tonnes a year ago. The boost from higher steel prices explains why revenues and earnings surged from what was a weak result at the start of last year
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And even US Steel, the poor man of the global steel market and a leading pleader for help from the higher steel tariffs from Donald Trump, benefited from the global rebound.
In that instance it was the surge in car production in the US, an upturn in construction and higher demand for whitegoods and similar steel consuming productions.
US Steel last week reported adjusted net earnings of $US964 million for the June quarter, vastly better than the net loss of $US469 million in the same quarter of 2020.
Net sales for the period were $US5.03 billion, almost double the $US2.9 billion of the year ago quarter.
And BlueScope Steel said its North Star electric arc furnace mill ran at 100% capacity in the year to June 30 and produced gross earnings of a record $US600 million in 2020-21.
