Iron ore demand
Since China consumes more than 70% of seaborne-traded iron ore (COMT), it’s important to track its demand patterns to get a cue for prices. In this article, we’ll discuss iron ore imports and Chinese steel production to assess its future outlook.
China’s iron ore imports
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 to China in March and April, it remains to be seen if that will be the case in 2018.
China’s steel production outlook
China’s authorities imposed production cuts on steel capacity for the four months ending March 15. Steel production in China is still on the rise despite these curbs. Steel production for the first two months of 2018 rose 6% compared to the same period last year. The daily output was 2.3 million tons, which is 7.4% higher than December 2017 and 5% higher than the previous corresponding period, according to Reuters.
Steel production has remained strong while demand hasn’t materialized as expected, which has resulted in the buildup of steel inventories. According to Barclays, “Overall inventories have risen from 773 kilotonnes in mid-December to 1,852 kilotonnes as of the first week of March, largely reflecting a massive build in rebar stocks.”
The piling up of stocks at steel mills in the absence of a strong demand environment doesn’t bode well for prices. While there’s a possibility of a correction in the short term, the lack of any significant increase in demand could lead to flat growth in steel prices in the medium term as well. That trend could be negative for seaborne suppliers (PICK) Rio Tinto (RIO), BHP (BHP)(BBL), Vale (VALE), and Cleveland-Cliffs (CLF).