China Iron Ore Imports, Prices Rising: Closures Could Add Support

The Chinese steel industry (and the Asian seaborne iron ore market on which it largely depends) could paraphrase Mark Twain by saying reports of a decline are greatly exaggerated.

Steel production, rather than slowing along with the rest of the economy, is actually continuing to grow robustly, up 9% on last year in July, on the back of construction and rail investment. Reports of July’s record iron ore imports, however, are a little misleading, coming as they do on the back of a low June level – 73.14 million tons and 62.3 million tons, respectively.

Exports from Australia’s Port Hedland have been relatively flat during the quarter, suggesting July was catch-up for delayed June shipments. Still, the average of 67.72 million tons is ahead of the average for the first seven months at 65.3 million tons, and in turn, that is ahead of last year by 8%, so the trend remains strongly positive, according to data taken from Reuters.

The good part for iron ore exporters and consumers?

Encouragingly for iron ore exporters (if not consumers, as this is already having an impact on prices), de-stocking in the steel industry continues as demand draws down inventory built up earlier in the year. Finished steel prices have picked up and mills’ margins have improved.

Not surprisingly, iron ore prices have responded, with TSI’s Fe fines benchmark price climbing to close out at US $130/dmt CFR Tianjin at the end of July, an average for the month increase of 10.8% over June. The use of derivatives by the market has continued to rise with cleared OTC Iron Ore contracts reaching a record of 28 million tons, a third monthly record in a row.

graph of OTC iron ore contracts
Source: TSI

Demand for iron ore is expected to remain robust, at least in the short term, in H2 this year.

If Beijing follows through on its commitment last month to close outdated  iron and steel production capacity by September, it could add to price support. The estimated tonnage affected – some 7 million tons per year – is small, and some may already be mothballed, but the move will still be seen as price supportive, providing the moves are enforced.

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