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Can Chinese Iron Ore Demand Keep Supporting Seaborne Prices?

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Iron ore demand

It’s vital for iron ore investors to track the demand patterns in China since it consumes more than 70% of seaborne-traded iron ore (COMT). In this part of the series, we’ll look at iron ore imports and Chinese steel production and assess its future outlook.

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China’s iron ore imports

China’s iron ore imports rose 0.8% to 82.9 million tons in April after falling 9.8% YoY (year-over-year) in March. While the end of winter (mid-March) might have provided a boost to imports, the rise was not significant. Market participants were expecting volumes to improve sequentially, but they fell 3.8%. The decision to extend production curbs in some steelmaking regions may be the reason for the decline.

China’s steel production remained strong

Lucrative steel margins and end-of-production curbs boosted Chinese steel mills’ production to a high of 76.7 million tons in April, which marked 3.7% sequential growth and 4.8% year-over-year growth. The daily average output was 2.6 million tons, the highest since at least May 2014.

China’s production of 76.7 million tons topped the rest of the world’s steel production of 71.6 million tons. According to Jefferies, rebar margins are at a ten-year high of $134 per ton, and according to MySteel, steel margins touched $95.80 per ton in April, rising 40% month-over-month.

If demand remains firm, iron ore prices (PICK) might climb even further, which could expand the price differential between higher-grade and lower-grade material. Vale (VALE), BHP (BHP), and Rio Tinto (RIO) are major iron ore producers that mine high-quality iron ore. Cleveland-Cliffs (CLF), on the other hand, produces sub-62% material, attracting discounts.

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