Iron Ore Rallies as China Imports Bust 100 Million Ton Level

LAGOS (Capital Markets in Africa) – Iron ore imports by China surged above 100 million metric tons to a record, smashing the previous high set in 2015, as the country’s concerted push to clean up the environment stoked demand for higher-grade material from overseas while hurting local mine supply. Prices rallied.

Purchases of iron ore expanded to 102.8 million tons in September from 93 million tons a year ago, surpassing the previous record of 96.3 million tons in December 2015, according to customs data on Friday. Over the first nine months, imports climbed 7.1 percent to 817 million tons, putting full-year purchases on course to top 1 billion tons by a comfortable margin.

China has been pulling in ever-greater volumes from miners in Australia and Brazil including Vale SA and BHP Billiton Ltd. to meet resilient demand from steelmakers, who’ve benefited from rising profit margins. As Asia’s top economy presses home a drive to clean up the air, mills are seeking out higher-grade material. At the same time, local mines have been restricted, with Macquarie Group Ltd. saying Chinese iron ore output has collapsed.

‘Gaining Popularity’
“High-grade ore is certainly gaining popularity,” Dang Man, an analyst at brokerage Maike Futures Co., said via text message. “Seasonally, September is a strong month for imports as mills tend to stock up before winter. We think purchases will drop significantly in October as steelmakers cut output.”

China plans to order cuts to steel and aluminium output this winter, potentially crimping supplies of both from the world’s largest producer. That means mills and smelters have been keeping more of their products at home. In September, steel exports tumbled to 5.14 million tons, the lowest since 2014, while aluminium cargoes dropped to 370,000 tons, a seven-month low.

Thrown a Lifeline
The unprecedented iron ore import figure provided a lifeline for prices that have been beaten down into a bear market in recent weeks amid speculation China’s steel cuts will lower overall demand. On Friday, futures in Singapore advanced as much as 6.2 percent to $62.20 a ton. The benchmark spot price for 62 percent content ore in Qingdao climbed 4.1 percent, the most since August, to $62.53 a dry ton, according to Metal Bulletin Ltd.

“Chinese iron ore production has collapsed through the summer,” Macquarie said in a report on Oct. 10, citing a government-led clampdown on small, private and high-cost mines. Separately, the China Metallurgical Mines’ Association said in September the crackdown on small, polluting mines may gradually force the cancellation of more than 1,000 licences.

Earlier this month, Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co., told Bloomberg that the crackdown on steelmaking on anti-pollution grounds, which could be bearish for iron ore demand, is compensated by an equally intense crackdown on domestic iron ore mining. That’s giving support to demand for higher-quality imported ore, according to Leszczynski.

Ore comes in different grades according to purity of content, and higher-quality shipments are more efficient for mills, enabling them to make more steel, and they also cause less pollution. BHP Billiton, the world’s largest mining company, said there’s a “new reality” in the global iron ore market as a flight to quality boosts the premium users will pay for better material.

Source: Bloomberg Business News