Iron ore demand
China is the largest consumer of the iron ore (COMT) and contributes more than two-thirds of the world’s seaborne-traded iron ore. In this context, we can track China’s iron ore imports and the outlook for steel production to gauge the future demand for iron ore.
China’s iron ore imports
China’s iron ore imports for July 2017 reached 86.3 million tons—a decline of 2.4% YoY (year-over-year) and an even steeper decline of 8.6% month-over-month.
While China’s imports fell in July, they’ve remained elevated overall YTD (year-to-date). Its imports for the first seven months show a growth of 7.5% YoY. Most likely, the crackdown by China on polluting steel units in key regions has led to an increase in imports.
China’s steel production outlook
China experienced another month of record steel production in July. After producing a record 73.2 million tons of steel in June, China set another record by producing ~74 million tons of steel in July.
July also marked the 17th-straight month of a YoY rise in steel production for China. Its YTD production of 492.0 million tons in July was also impressively up 5.0%, compared with the same period last year.
The crackdown on illegal steel units has led the existing units to work at higher capacity utilization. This will also lead to higher demand for higher grade iron ore. This is positive for high-grade iron ore producing companies (COMT) like Vale SA (VALE), Rio Tinto (RIO), and BHP Billiton (BHP).
Cleveland-Cliffs (CLF) has a relatively small presence in the seaborne iron ore market. Higher seaborne prices could, however, impact the stock positively as well.