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Cleveland-Cliffs and China’s Iron Ore Demand Outlook

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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 an idea of prices. In this part of the series, we’ll look at iron ore imports and Chinese steel production to assess its future outlook.

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China’s iron ore imports

China’s iron ore imports fell 9.8% year-over-year (or YoY) in March 2018. In the first quarter of 2018, imports were 0.1% lower than the same period last year. The building up of inventories seems to have caught up with China’s demand for imported ore. Since China’s steel margins have come under some pressure, the mills have started demanding slightly lower grade material as well. That’s plentiful in the stockpiles at ports, which might negatively impact the demand for imported ore.

China’s steel production outlook

China’s authorities imposed production cuts on steel capacity for the four months ended March 15. Steel production in China was still on the rise despite these curbs. Steel production rose 4.5% YoY to 74 million tons in March. The margins for mills have declined, but they still remain at levels where the mills can continue producing steel at elevated capacity.

Steel inventories in the mills have also started inching down, which might favor more demand in the short term. 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).

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