Energy consultant Wood Mackenzie (WoodMac) has put forward some thoughts for the new year concerning iron ore and steel.

The company is claiming that the global iron ore industry starts the new year in 'surprisingly good shape'. Prices are 'holding comfortably' despite all the rhetoric over a China 'hard landing' and escalating trade tensions, not to mention a steel profitability squeeze.

According to WoodMac, iron ore prices are holding comfortably above US$70/tonne CFR with little if any evidence of margin compression. The company's base case view for 2019 suggest that ongoing restructuring of the Chinese steel and iron ore industry, in response to increasingly stringent environmental controls, will continue to support demand for seaborne iron ore. However, compliance comes at a cost, says WoodMac, particularly for domestic mines in China, some of which will be forced to go underground, meaning higher operating and capital costs.

WoodMac claims that India could be 2019's big story. "We believe the rise in Indian imports in 2018 wast he start of a long-term structural trend rather than a one-off blip. With China still growing and India on the rise, global growth in seaborne trade of at least 30Mt should be achievable this year, supporting prices for 62% Fe sinter fines at US$65-70/tonne CFR," it said.

However, given the high level of economic and geopolitical risk around the world, there will be bumps along the way.

Where steel is concerned, WoodMac believes that 2019 is 'shaping up as a year of reckoning and resetting of expectations. The steel industry, says WoodMac, enjoyed a stellar run since H2 2017, but in November 2018 steel prices started to fall, compressing steelmakers' margins to uncomfortable levels.

Where Chinese steel demand is concerned, WoodMac asks: is there another rabbit in that hat? The company claims that 'the policy-making finesse required to rebalance the Chinese economy (and support steel demand) will be put to ever-harder tests. Chinese leaders, it is argued, have so far prevented a hard landing in construction. "Stimulus measures point to a repeat of that feat, but stimulating construction is increasingly difficult and consumption of steel-intensive goods has taken a hit."

As for trade wars, while demand was soaring, trade wards brought extra prices support to US steelmakers. As demand growth eases in 2019, will trade wards bring about 'demand destruction'?

In terms of capacity growth in India, WoodMac wonders about a 2019 revival, claiming that the state of Odisha's recent reallocation of land from the infamous POSCO mega project to JSW and Steel Authority of India Ltd (SAIL) might spur the long-awaited greenfield capacity growth.

Lastly, WoodMac tackles 'green steel', stating that in the recently concluded steel-capacity clean-up, China focused on air, soil and water pollution, while the EU is tightening the screws on CO2 emissions. The big question, says WoodMac, is: with the will to co-ordinate policies internationally at historic lows, will the cost of protecting the environment trigger more protectionism?