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China could set new record for iron ore imports

It’s hard to believe that for all the negative news coming from China this year on weak demand for steel products, weak exports, the property sector crunch and deflation that there is every likelihood the country could set a new all time annual high for imports of iron ore.

With still two months to go in the year, the country is within 25 million tonnes of importing a billion tonnes, which would have been unthinkable at the start 2023 with all sorts of dire warnings about looming official production cuts for steel producers to be ordered in the second half of the year.

A new centralised buying agency was supposed to seize control of iron ore imports, drive down demand and divert tonnages away from Australia.

None of that has happened and the uncertainty confirms the belief that the workings of the Chinese steel and iron ore markets is a mystery to even the most informed insiders.

Steel production has surprising held up, iron ore stocks have slid and continue to fall over 2023, especially the key reserves at portside which are now at 7 year lows and market prices for iron ore (the standard 62% Fe blend from the Pilbara) is around their highest levels for more than a year.

Once again the ins and outs of China’s commodity import policy and domestic steel demand/production, have come together to confound analysts of all types.

And no doubt the best minds in BHP, Rio Tinto, Fortescue and Brazil’s Vale – the world’s four biggest iron ore exporters.

China’s iron ore imports in the first 10 months of 2023 rose 6.5% to 975.84 million tonnes after 99.39 million tonnes of ore was imported in October.

Seeing imports were up 7.7% in the first seven months of the year, so there has been no slowdown in the closing months of 2023.

Maintaining imports at that level over the final two months of this year will see the total for the year go close to 1.170 billion tonnes, an all time high and topping the 1.108 billion imported in 2020, the first year of the pandemic.

While China’s iron ore imports in October fell 1.8% from September, dropping for a second straight month, they were up 4.6% from the 95 million tonnes imported in October, 2022 (which was a pandemic-impacted month).

October’s total was disrupted by the week long national holidays at the start of October and was down as a result from the 101.18 million tonnes in September.

Reuters said Chinese analysts blamed the early holiday, narrowing steel margins, wider production cuts among steelmakers and high (and rising iron ore ) prices for capping demand.
The average seaborne iron ore prices hovered around $US119 a ton, a 29% rise year on year despite a fall of 1.6% from September. SGX iron ore futures in Singapore were trading around $US124-$US126 a tonne on Thursday – their highest level for more than a year.

That’s despite China boosting imports from Brazil and India (whose ore is of lower grade and much cheaper) faster than their purchases from Australia (though the extra tonnes from Australia are a higher figure).

China’s portside iron ore stocks are forecast to end the year at the lowest level since 2016, meaning there will be an upturn in imports in the first quarter of 2024 to rebuild those stocks.

The final import figure for 2023 could end up around 1.2 billion tonnes because imports usually rise in December ahead of the Lunar New Year break early next year and the peak winter demand period.

The Lunar New Year holiday starts February 10, meaning January will also see higher import figures for iron ore and other commodities

The monthly data for October has also confirmed the importance of steel exports to the Chinese industry..

China’s exports of steel products in October rose 53.3% from the prior year to 7.94 million tons, but fell 1.5% from 8.06 million tons shipped abroad in September.

Total steel exports from the world’s largest steel producer totalled 74.73 million tons from January to October, a 34.8% annual increase.

The final figure for 2023 could end up around 90 million tonnes, which is almost a month’s production of crude steel, highlighting how the steel mills have switched output into the export markets to make up for the weak demand from property and construction.

The surge in exports helps explain why demand for iron ore has held up through the year and why prices are better than anyone had forecast mid year or even in September.

In contrast imports of steel products into China have fallen 30.1% so far this year. That tells us that domestic demand in steel consuming industries remains weak, as this week’s figures showing a return to consumer price deflation and yet another month of falling prices across the producing sectors of the economy. 

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