Another monthly record
In the previous article, we discussed that Chinese iron ore imports remained stronger despite the trade war fears in July. The stronger imports are primarily due to the robust steel production in the country.
In July, China produced a record 81.2 million tons of steel. In June, the figure stood at 80.2 million tons. The previous record of 81.1 million tons of steel output was achieved in May 2018. The record in July was created despite the ongoing measures to curb pollution. In the first seven months of the year, steel output in China rose 6.3% as compared to the same period last year.
China’s steel production
The government has shut down old and inefficient steel capacity in the country in the past couple of years. However, steel production is still on the rise, as the remaining mills are working at a very high utilization rate to benefit from attractive steel margins.
While the steel production year-to-date has been very impressive, the concerns are growing that China might have reached or is close to achieving peak production. China’s economy was already showing signs of cooling off, and the US-China trade war has only escalated these concerns.
Robust steel margins support production
As a lot of the old and inefficient capacity has been shut down and steel margins remain high, the remaining mills are demanding high-quality iron ore, which leads to a more efficient steelmaking process and lower pollution. This, in turn, is helping producers of high-grade iron ore (PICK) such as Vale (VALE), BHP (BHP), and Rio Tinto (RIO). Fortescue Metals Group (FSUGY), on the other hand, produces sub-62% material and is attracting discounts.