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China’s Iron Ore Imports Have Fallen, Outlook Remains Muted

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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.

China imported 86.25 million tons of iron ore in November, implying declines of 8.8% YoY (year-over-year) and 2.4% sequentially—and marking its second straight month of decline. As the profit margins at steel mills have started to contract, restocking demand has been weak. This weakness has been weighing on the demand for imported iron ore. Imports for the first 11 months of 2018 trended down 1.4% compared to the same period last year.

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Iron ore demand outlook stays muted

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. US-China (QQQ) (VTI) (MCHI) trade issues are also expected to impact the Chinese economy, which could lead to an impact on all sectors.

Due to lower margins, Chinese mills have now switched back to using lower-grade ore. Major miners, (XME) such as BHP (BHP), Rio Tinto (RIO), and Vale (VALE), produce high-grade materials, and their premium is coming down. However, Vale believes that the higher premium for higher-grade material is here to stay.

In the next article, we’ll see how China’s steel production, which is the largest driver of iron ore imports, is panning out.

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