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Will China’s Iron Ore Demand Keep Supporting Prices in 2018?

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Iron ore demand

China’s demand for seaborne iron ore dictates the commodity’s price because it consumes more than 70% of seaborne-traded iron ore (COMT). In this article, we’ll discuss iron ore imports and Chinese steel production to assess its future outlook.

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China’s iron ore imports

After remaining very strong throughout most of 2017, Chinese iron ore imports have started on a positive note for 2018 as well. In January 2018, China’s imports jumped to the second-highest level on record to 100 million tons. Most steel mills were restocking ore ahead of the Lunar New Year holiday. Moreover, steel capacity cuts put in place by Chinese authorities in November 2017 are coming to an end in mid-March, which might also have prompted steel mills to restock.

Imports in January are just below the record 102.8 million tons of shipments in September 2017. On a year-over-year (or YoY) basis, imports grew 8.7%.

China’s steel production outlook

China’s steel production in 2017 remained strong. Overall in 2017, China’s steel production was 4.4% higher than in 2016. Its steel production in December 2017 was 67.1 million tons, 0.3% lower YoY. The production has fallen somewhat in China due to steel production capacity cuts to curb pollution in the winter. Production cuts are in place until the middle of March 2018. They could mean that production will see further weakness at least until then.

While this could mean that iron ore prices could come under near-term pressure, pent-up demand should drive up prices after the winter cuts are over. Big miners (XME) such as BHP (BHP), Rio Tinto (RIO), and Vale (VALE) should continue to benefit from higher premiums.

However, miners producing lower-than-benchmark-grade ore—such as Cleveland-Cliffs (CLF) and Fortescue Metals Group (FSUGY)—could see discounted prices.

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