Iron ore’s China import boom seen faltering as peak passes
The great Chinese iron ore buying machine may be about to falter. Imports of the raw material that feed the world’s largest steel industry are at risk of shrinking this year for first time since 2010 even as official figures suggest that mills are producing unprecedented amounts of steel.
The expected drop is a sign mills are revising their steel-making recipes, both ordering a higher-grade mix of iron ore cargoes and boosting use of scrap steel, according to Liberum Capital. In the first nine months, imports fell 1.6% to 803.3mn tonnes.
The global iron ore market revolves around China, which accounts for about 70% of seaborne shipments from miners including BHP Billiton, Rio Tinto Group and Vale. Since the turn of the century that trade has exploded, surging from 70mn tonnes in 2000 to more than 1bn tonnes as steel output soared in Asia’s top economy. Now there are signs that the boom may be topping out as economic growth eases off, and as a clampdown on pollution prompts mills to favour higher iron ore grades and more steel scrap.
Use of the two materials, together with a ramp-up in mills’ operations ahead of winter supply curbs, explain the record steel output numbers, Richard Knights, an analyst at Liberum, said in an email. More legal steel-making capacity being included may also be key to reconciling “massive numbers of steel production against flat iron ore imports and pig iron production,” he said.
Australia’s government – which has said that it expects China’s steel output to peak this year – is projecting a decline in the mainland’s full-year iron ore imports, according to its latest quarterly outlook. After hitting 1.075bn tonnes in 2017, shipments will drop to 1.059bn this year, and fall to 1.021bn by 2020. The country is the world’s biggest iron ore shipper.
At CRU Group, full-year imports are also forecast to decline, sliding about 20mn tons, according to the company’s calculations, which suggest mainland steel production is dropping too. “Chinese crude-steel production this year is actually down 1% to 2% year-on-year for the first eight months,” said senior analyst Erik Hedborg. “In contrast, official crude-steel production figures suggest that crude steel production is up 8 to 9%.”Figures from Australia’s busiest bulk-export port showed a slowdown in China’s appetite last month, although flows so far this year remain higher.
October’s cargoes from Port Hedland for China were 32.8mn tonnes, from 35.2mn a year earlier, data showed on Tuesday. Year-to-date, they’re up 1.9%. The terminal is used by miners including BHP and Fortescue Metals Group.
China’s top mill, China Baowu Steel Group Corp, has signalled domestic steel usage has probably hit a peak. “The Chinese economy is moving from high-speed to high-quality growth, but the growth is still certain and the growth rate globally isn’t low,” Chairman Chen Derong said this week. That’ll counter the broader re-balancing of the economy away from investment and toward consumption, and lead to “stabilised circumstances for an extended period.”
Still, the top miners have signalled that for now iron ore demand remains robust, in part as Beijing boosts infrastructure spending amid the trade standoff with the US Fortescue chief executive officer Elizabeth Gaines said last week it’s seeing “very strong demand” driven by steel production.
Rio chief executive officer Jean-Sebastien Jacques said last month China’s stimulus is supporting demand, with order books for raw materials remaining full. Brazil’s Vale just reported quarterly output of more than 100mn tonnes, with quality ore sought after, including from its new S11D project.
China’s anti-pollution drive – which targets emissions and includes curbs on industrial output – has spurred mills to use better-quality ore, meaning that a single cargo of higher- content material can be used to make more steel than the same volume of lesser-grade. Using scrap instead of iron ore also cuts imports, as well as reducing the need for sintering – the polluting process by which grainy fines are stuck together for use in furnaces.
Still, not all observers see China buying less this year, with Wood Mackenzie forecasting a rise of 4mn tonnes.