Which sectors are hit due to the current rally in iron ore prices ?

The prices of iron ore have almost doubled in the last one year, on account of strong economic growth, globally. China's decision to curb steel production and rising iron ore prices have pushed steel prices to record highs.

Iron ore prices soared past US$200 on Tuesday, driven by reports that China's largest steelmaking province, Tangshan, is planning to ease requirements for production cuts at its mills in the second half of 2021. The base metal is mined in around 50 countries. Australia is the leading exporter of the metal, which is used in almost every industry.

A robust global economic recovery is the primary driver for its demand and supply. With growing economic activities, the demand for steel in construction also increases, which in turn increases the prices. China is the leading consumer of iron ore in the world.

Strong demand and higher iron ore prices coupled with China’s production curbs have fuelled the surge in domestic steel prices. Notably, the top steel-producing country had imposed limits on production in March this year to lower the country’s carbon emissions.

Though steel prices in China started soaring at the beginning of the year, the rally gained momentum in May after an abrupt surge in demand post the Labour Day holiday.

The construction and automotive sectors are the main consumers of steel. Both the industries were hit hard by the coronavirus-led supply chain disruptions. With skyrocketing steel prices, they are likely to brace for another hit.