Despite China’s crude steel output falling for the fourth consecutive month in October, iron ore futures prices hit new 17-month highs on the SGX in Singapore on Wednesday.
The price for the December contract rose above $US130 a tonne, the highest since the June-July period of 2022, on Wednesday.
It later ended just under $US130 a tonne on a day when Chinese data showed crude steel output fell to under 80 million tonnes in October, down 3.7% from the 82.11 million tonnes in September and down nearly 2% from October 2022.
This is good news for Australia’s big iron ore exporters such as BHP, Rio Tinto, Fortescue Metals, and Roy Hill, and for analysts at Citi who forecast the price of 62% Fe fines would reach $US130 a tonne by the end of the year – it has arrived six weeks early.
October’s figure was nearly 16% less than 2023’s peak month of March when more than 95 million tonnes of crude steel were produced.
Steel production for the first 10 months of the year was up 1.4% from the same period in 2022 at 874.7 million tonnes.
If production continues at the 80 million tonne level this month and December, Chinese crude steel output will end up above a million tonnes (around 1.030 billion tonnes).
If that happens, it will top 2022’s 1.013 billion tonnes and come close to 2021’s 1.034 billion tonnes.
It will also match the iron ore import figure, which will easily top a billion tonnes this year for the 7th year in a row (2016 was the first year imports topped a billion tonnes).
China imported 99.39 million tonnes of iron ore in October, even though shipments to China from Port Hedland – the world’s biggest port – fell 5% to 39.66 million tonnes, according to figures from the Pilbara Ports Authority.
Total iron ore exports from Port Hedland last month were just under 47 million tonnes, slightly higher than the 46.9 million tonnes shipped in the same month of 2022. Shipments to Japan rose.
The drop in Chinese official output came as more steel mills implemented furnace maintenance (as they did in September) and faced shrinking margins and weak demand from the weakened construction sector, especially housing.
Less than one-fifth of Chinese steel mills surveyed were operating at a profit by the end of October, down from around one-third in late September, data from consultancy Mysteel showed.
Global iron ore exports grew 2% in the 9 months to September, as China’s appetite for ore was fed by significant falls in stocks of this raw material in Chinese ports, and a reduction in scrap consumption by the country’s steelmakers due to increased domestic prices amid limited supplies.
In addition, China has cut iron ore production by 5% year-on-year over the first 9 months of 2023, due to strict safety checks in key areas due to frequent mine accidents. This affected performance and increased dependence on imported raw materials.
MySteel says there are no signs yet that China intends to cut steel production before the end of 2023 – the government probably does not want to hamper the pace of economic growth.
According to Mysteel, the level of utilisation of domain capacity in the country at the end of October was 90.73% (87.64% in the same period in 2022).
Australian exports in the 9 months eased by less than 1% to 631 million tonnes, while shipments from Brazil rose to 275 million tonnes with Vale’s exports up 7% (but down in the month of September) and Indian exports more than doubled (from a low base) because Chinese mills are using this low-grade ore to replace scrap in pig iron production.