25-11-2017

Chinese Iron Ore Imports: Holding Strong

Chinese seaborne iron ore imports have grown robustly in the year to date, and are currently projected to reach 1,074mt in full year 2017, accounting for more than 70% of global seaborne iron ore imports and around a third of the expected growth in total seaborne dry bulk trade this year. What factors have driven the firm expansion in China’s seaborne iron ore imports in 2017 so far?

As Hard As Iron

After a period of slower growth in Chinese seaborne iron ore imports in 2015, expansion picked up in 2016 and imports have continued to grow firmly so far this year, rising 7% y-o-y to 804mt in the first nine months of 2017. This growth has continued to be principally driven by exports from Australia and Brazil, which have accounted for more than 75% of China’s import growth in the year to date between them, a similar proportion to last year. However, a number of other suppliers have also increased exports to China, with China’s imports from India more than doubling in the year to date and imports from Iran and Sierra Leone growing by more than 35%.

Striking While The Iron Is Hot

The overall growth in Chinese iron ore imports has partly been supported by a c.3-4% increase in China’s steel consumption in 2017, whilst supply-side reform in China’s steel industry has also played a major role. The Chinese government, aiming to improve profitability in the steel sector and reduce air pollution, reportedly shut down more than 100mtpa of ‘illegal’ induction furnace steel capacity in 1H 2017. As a result, and against a backdrop of improved demand, steel prices rose firmly and the country’s major steel plants have subsequently ramped up production to take advantage. Official data, which does not include ‘illegal’ capacity, shows a 6% y-o-y increase in China’s steel production so far this year, although underlying steel production growth is likely to have been more modest, at around 3% when the closure of ‘illegal’ capacity is taken into account. As China’s ‘illegal’ induction furnaces typically consumed relatively low grade domestic iron ore and scrap, whilst the major steel plants generally use higher grade imported iron ore, China’s reliance on imports is likely to have increased further this year, having reached a reported 87% in 2016.

Acid Test?

However, growth in Chinese iron ore imports could slow somewhat towards the end of the year as a result of planned steel production cuts, although the extent of such an impact is uncertain. Government policies to reduce air pollution are expected to cut steel production by up to 50% during the winter months in a number of cities including Tangshan, China’s largest steel producing city. There are a range of scenarios, with the general consensus suggesting a slight decline in production in the period between November and March, although some reports suggest a y-o-y decline of as much as 8%.

So, while there is uncertainty over the impact of steel production cuts over the winter, China’s seaborne iron ore imports still look set to have expanded robustly in full year 2017. Overall, it seems that China’s supply-side reform in the steel industry has been a key driver of firm growth in global seaborne dry bulk trade this year.

Source: Clarkson Research

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