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Cliffs Natural Resources: Iron Ore Demand Outlook

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Iron ore demand

Even though the price of iron ore rallied in 2016, not many market participants are optimistic about the rally’s longevity. Supply-and-demand fundamentals are expected to catch up with the commodity’s price as more supply starts coming online in 2017.

Vale (VALE) has already started commercial production at its 90-million-tons-per-year project, S11D.

As for demand, China consumes more than two-thirds of seaborne iron ore. Tracking China’s iron ore demand is vital for iron ore investors.

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China’s iron ore imports

China imported a total of 92.0 million tons of iron ore in January 2017, which represents a rise of 12.0% YoY (year-over-year) and 3.4% month-over-month. That’s the second-highest monthly import volumes on record.

Steel demand growth in 2017 depends on many factors such as construction sector growth and government stimulus. But China’s crackdown on pollution will likely keep the replacement demand for iron ore going in 2017.

China’s steel production outlook

China (FXI) (MCHI) produced 808.4 million tons of steel in 2016. It produced 68.9 million tons of steel products in December 2016, which represents a YoY rise of 7.1% in addition to a rise of 4.7% in November.

Many market participants are now predicting volumes to fall in 2017. China has been reeling from overcapacity in the steel industry. Planned capacity reduction for 2016 was 45.0 million tons. According to MVS (Mineral Values Service) estimates, the figure wound up almost double, at 80.0 million tons.

Another factor is that inventories at ports have reached all-time highs. The property market might finally take a breather as the People’s Bank of China starts tightening. But that doesn’t seem to be going the way of ever-increasing iron ore supplies.

The above factors could result in lower iron ore imports from seaborne players such as Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale (VALE), and Cliffs Natural Resources (CLF).

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