Why China’s urbanization is leading to a rise in iron ore imports

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China’s urbanization

For the rest 2014 and beyond, China’s continued development in urbanization is expected to contribute significantly to steel consumption. Infrastructure, housing, construction, and consumer spending growth underpin future development—according to Navios Maritime Partners’ (NMM) management.

China urbanization

 

On a year-over-year (or YoY) basis, Chinese fixed-asset investments continued to grow at over 16.5% through August. The growth was led by railway and social housing construction. For September, China reported a purchasing managers’ index (or PMI) of 51.1. This reflected continued infrastructure and manufacturing growth. Any number above 50 indicates economic expansion.

Statistics

China’s successful urbanization has a direct correlation with the steel and iron ore industry. NMM’s management commented that crude steel production through September 2014 increased 5% YoY. China’s domestic iron ore production increased by 8% in the same period.

However, the quality seems to be deteriorating. Effective iron ore content hovers in the 15% range—compared to 63% for imported ore. Meanwhile, Chinese iron ore imports were up 16% YoY.

Industry analysis on the data indicates that there’s substitution of low-quality domestic iron ore with imported ore. This trend is expected to continue. It will increase the tons carried in ton miles.

It will benefit DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), and Navios Maritime Holdings Inc. (NM). It will also benefit the Guggenheim Shipping ETF (SEA).

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