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Has Trade War Affected China’s Steel and Iron Ore Demand?

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Customs data and China’s iron ore imports

China consumes more than 70% of seaborne-traded iron ore, so it’s important for iron ore investors to track the country’s demand and outlook to gauge the overall outlook for iron ore.

After dropping by 12% YoY (year-over-year) in June, China’s iron ore imports rose 4.2% YoY to 89.96 million tons in July, which is a rise of 8.0% sequentially. In the first seven months of the year, China’s iron ore imports slipped 0.8% YoY. This fall could be the result of steel production restrictions put in place in the first three months of the year.

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July’s import rise

The rise in iron ore imports in July is despite measures put in place by authorities to curb pollution. Strong steel production as well as robust steel margins were the major drivers behind the rise in iron ore imports during the month.

Iron ore import demand outlook

Most market participants agree that China’s iron ore imports will increase at a very slow growth rate in the years ahead mainly due to the high base as well as the general steel overcapacity in the country. The US-China trade issues are also expected to impact the Chinese economy, which could lead to an impact on all sectors. However, as we’ll see in the later parts of this series, steel demand as well as margins remain strong as of now and are supporting iron ore prices despite a rise in iron ore supply. Moreover, the Chinese government is providing policy support to arrest the slowdown and boost the economy.

Currently, miners (XME) producing high-grade ore, including BHP (BHP), Rio Tinto (RIO), and Vale (VALE), are trading at a premium to other miners. Fortescue Metals Group (FSUGY) and Cleveland-Cliffs’ (CLF) Australian operations, which were recently sold off, could continue to attract discounts.

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