Customs data and China’s iron ore imports
When it comes to estimating demand for a commodity, it’s not easy to ignore a country that single-handedly consumes more than 70% of the commodity. We’re talking, of course, about seaborne-traded iron ore and China. It’s vital to track Chinese iron ore imports to gauge the direction of future prices.
In yet another sign of the weakening demand for iron ore, China’s iron ore imports fell 15.7% sequentially in February 2018 and were flat year-over-year (or YoY). One of the reasons for lower demand could be the Lunar New Year break. January and February data combined showed that imports rose 5.4% YoY. While seasonal demand usually returns in China in March and April, it remains to be seen if that will be the case in 2018.
Strong steel mill margins were the main reason for the record pace of imports by China. We’ll see in the next few parts of this series if that demand can continue to support prices. Overall, steel margins have been falling lately, which has negatively impacted the prices of raw materials.
Strong iron ore import demand
Earlier, steel mills probably restocked in anticipation of higher demand since capacity cuts end in March. It remains to be seen if the same restocking can continue as the cuts come to an end. Moreover, the premium of benchmark and above-grade iron ore to the sub-benchmark ore might also deplete.
For now, miners (XME) producing high-grade ore, including BHP (BHP), Rio Tinto (RIO), and Vale (VALE), are paid a premium over other miners. Cleveland-Cliffs (CLF) and Fortescue Metals Group (FSUGY) could keep attracting discounts.