China’s steel demand
While tighter iron ore supply is supporting prices on one hand, firm Chinese steel demand is also helping prices. China’s (FXI) April steel production totaled 85.03 million tons, which represented growth of 12.7% month-over-month and 11% YoY. Between January and April 2019, China produced ~312 million tons of steel, implying an increase of 10.1% YoY. This resilient Chinese demand comes even though China is currently locked in a state of the trade war with the US, which is negatively impacting other commodities’ prices such as copper and aluminum.
There have also been several rounds of stimulus in China with talks of several more, which is also supporting steel demand. Moreover, a new round of environmental inspections is underway in China’s industrial hubs. Tighter environmental controls push Chinese mills to go for higher-quality imported ore as opposed to domestic ore.
Cleveland-Cliffs (CLF), a US-based iron ore pellet supplier, doesn’t directly benefit from higher seaborne iron ore prices, but they have an indirect positive impact on the miner. Moreover, Vale is the largest global iron ore pellet supplier, and the dam burst has affected its pellet supply, which has positively affected Atlantic pellet premiums and thus CLF.