Will May’s Lower Chinese Iron Ore Imports Support Prices?

Customs data and China’s iron ore imports

As China consumes more than 70% of seaborne-traded iron ore, it’s imperative for iron ore investors to track the country’s demand and outlook. Today, China released its trade data for May. Its iron ore imports came in at 83.75 million tons for the month, 3.7% higher month-over-month but marking a decline of 11% year-over-year.

For the first five months of the year, China imported 423.9 million tons of iron ore—which is a fall of 5.2% from the corresponding period last year.

Will May’s Lower Chinese Iron Ore Imports Support Prices?

Supply disruptions at iron ore miners

Investors should note, however, that the decline in imports isn’t because of China’s waning appetite for iron ore. Instead, it’s mostly due to supply disruptions among miners. Due to a dam burst at Vale’s (VALE) mine in late January, a major part of the company’s iron ore production took a hit. Vale estimated a volume decline of 75 million tons more than its previous estimate for 2019. This medium-to-long-term disruption preceded near-term supply disruptions at Rio Tinto (RIO) and BHP Billiton (BHP) as well.

BHP is expecting a decline of 6 million–8 million tons of iron ore in 2019. Its port and rail operations are running at reduced rates due to flooding. The estimated impact on Rio’s production is even higher. Due to the combined impact of Cyclone Veronica and a fire at one of its ports in January, Rio is expecting an output cut of 14 million tons in 2019.

Supply shortage met robust demand

These supply shortages from iron ore miners met with robust steel demand from Chinese mills. China’s (FXI) steel production in April came in at a record high of 85.03 million tons, implying growth of 12.7% month-over-month and 11% year-over-year. In the first four months of the year, China produced ~312 million tons of steel, indicating an increase of 10.1% year-over-year.