Finance Link News, August 19th (Editor Xiaoxiang): Despite the midsummer, steel companies have a chilling sense regarding the current situation of the entire steel industry.

On August 13th, China Baowu News published a commentary article titled 'Promoting Intensive Operation and Integrated Coordination in Accounting'. The article pointed out that the steel industry is currently facing a more severe and complex operational situation than last year, with the three major features of a 'long cycle', 'reduction', and 'structural adjustment' becoming more prominent. This round of steel 'severe winter' may be longer, colder, and more difficult than we expected.

According to Ansteel Group Co., Ltd.'s public account, on August 15th, Ansteel held an economic operation analysis meeting for July 2024. The meeting also pointed out the severe situation in the current steel industry, which is more severe than in 2008 and 2015. Companies will face unprecedented difficulties and challenges. All employees of Ansteel should have a clear understanding of the current market situation and be prepared to fight hard battles.

Undoubtedly, many steel companies currently have a grim outlook on the industry, which has made life 'difficult' for several major international iron ore miners upstream.

Since the beginning of this year, the price of this key steelmaking raw material has dropped by over one-third, and the combined market cap of the 'Big Four' global iron ore miners - BHP Group Ltd, Rio Tinto, Vale SA, and Australia's Fortescue Metal Group - has evaporated by approximately $100 billion.

According to the pricing agency Argus, the price of iron ore shipped to Qingdao Port International has now dropped to $92.2 per ton, the lowest point since November 2022, and also below the key round number of $100. At this price level, some high-cost iron ore production has started to become unprofitable.

Vivek Dhar, Director of Mining and Energy Research at the Commonwealth Bank of Australia, said, 'Financial markets have reason to be concerned that iron ore prices may continue to remain below $100 per ton in the short term.'

Mining companies are feeling the "harsh winter" ahead of schedule.

For a long time, iron ore has been the "money tree" for global mining giants such as BHP Group Ltd and Rio Tinto, until recently, many mining executives still do not seem to be worried about the declining demand.

Last month, Rio Tinto's CEO Jakob Stausholm stated in a media interview that even though steel demand from China's real estate has decreased by 0.1 billion tons, the energy transition from 2020 to 2023 brought about a growth of 40 million tons. Compared to last year's global iron ore production of 1.9 billion tons, this can only be considered a drop in the bucket.

However, the recent trend in the entire industry may have forced the mining giants to respond. Some analysts suggest that large mining conglomerates may be strict in discipline in order to prevent a steep collapse in iron ore prices. In fact, the shipments from Australia and Brazil have already started to slow down, and the data for July indicates a sharp decline in shipments.

Previously, BHP Group Ltd and Vale SA reached record levels of iron ore production in the first half of 2024, while the inventory of this commodity in Chinese ports continues to grow. Data from SteelHome shows that iron ore inventory at Chinese ports has increased by 28% from the same period last year, to 0.154 billion tons.

Bernstein mining analyst Bob Brackett said, "Iron ore is a highly organized industry. Global mining giants control their own supply chains. Just like OPEC won't let the market be flooded with oil, if the market doesn't need their iron ore, they will slow down production."

It is generally expected in the industry that among large iron ore miners, Fortescue will be more affected than several other giants. Over 90% of the company's revenue comes from iron ore. Citi analyst Paul McTaggart stated that the company's exposure to this commodity was "problematic".

Of course, those worse off than the four major miners are likely to be the small and medium-sized mining companies.

Cicero Machado, senior manager of bulk assets at Wood Mackenzie consulting firm, said, "Although the downward pressure on iron ore prices is expected to squeeze the profits and dividends of major miners, producers in China, Malaysia, and South Africa, as well as smaller companies, will feel the greatest pain. They will be the first to feel the impact, and if prices continue to decline, they are likely to be squeezed out of the market."