Record high Chinese steel prices will put ASX iron ore producers in the spotlight on Monday, but there's another group of ASX shares that could be the real winners.
While the futures market is pointing to a small drop in the S&P/ASX 200 Index (Index:^AXJO) investors will be eyeing the Fortescue Metals Group Limited (ASX: FMG) share price, Rio Tinto Limited (ASX: RIO) share price and BHP Group Ltd (ASX: BHP) share price to see how they react to the jump in the price of steel on Friday.
However, its the BlueScope Steel Limited (ASX: BSL) share price and Sims Ltd (ASX: SGM) share price that could benefit more. I'll explain in a moment.
Chinese steel prices at record highs
The Rebar price hit its highest level on the Shanghai Futures Exchange since record began in 2009, reported Bloomberg.
Further, Hot-Rolled Coil (HRC) is trading close to a seven-year high with both steel products gaining 2% last week.
The price increases come even as Chinese authorities threaten to clamp down on steel production.
Steel output curbs could impact on ASX mining shares
"We expect the central government will likely launch a nationwide production control plan soon," Bloomberg quoted a Citigroup report.
"Despite the market concerns of potential inflation risks, we believe the government is determined to curb steel production in order to reduce its carbon footprint."
What's more, nationwide controls could be followed by more cuts in other provinces in the second half.
Not all bad news for ASX iron ore miners
Chinese restrictions are a potential threat to ASX iron ore miners. The commodity they export are a critical input consumed by steel mills.
But experts are divided on how big of a risk this poses to the ASX shares. While weakening steel output technically means lower demand for iron ore, supply curbs are supportive of high steel prices.
High steel prices are great news for our miners as the price of iron ore is likely to remain near record highs of their own.
Brazilian wildcard
The thing that could tip the scale in favour of the bulls or bears may be Brazil. Output from Australia's rival iron ore supplier is struggling due to the rampant outbreak of COVID-19.
Brazil's largest iron ore miner, Vale SA, missed production expectations for the first quarter of 2021. News that the country's environmental agency ordered Vale to suspend operations at its Ilha da Guaiba export terminal is adding to the angst.
However, Bloomberg reported that another Brazilian government department has allowed Vale to resume exports at the terminal hours later.
The uncertainty in Brazil will make forecasting all that much challenging for ASX investors.
The real ASX shares that benefit from record steel prices
While experts are working out the real impact of China's measures on ASX iron ore shares, shareholders in BlueScope and Sims will be grinning.
If Chinese steel prices remain buoyant, this will also likely put upside pressure on global steel prices. That puts the BlueScope share price and Sims share price in the box seat as their margins should be able to withstand lofty iron ore prices.
And if they are doubly lucky, the iron ore price may weaken to deliver their bottom line an extra boost.
