LAUNCESTON, Australia, Sept 17 (Askume) – China’s steel and iron ore industries are clearly out of touch, with steel output weakening but imports of the key raw material remaining strong.
Data released by the National Bureau of Statistics on Saturday showed that crude steel output in August fell 6.1% from July to 77.92 million tonnes.
Production in August was the lowest since December and was also 10.4% lower than the same month in 2023, while output in the first eight months of this year fell 3.3% to 691.41 million tonnes.
China, which produces more than half the world’s steel, is struggling to boost demand, particularly in the key real estate and construction industries, as a series of stimulus measures have yet to bear fruit.
The latest disappointing data was that new bank loans grew less than market expectations in August after hitting a 15-year low in July, while new home prices fell at the fastest pace in more than nine years in August, falling 5.3% from July.
Sluggish demand for steel has led to most mills incurring losses as they maintain production despite falling prices.
On Sept. 9, the Shanghai benchmark rebar contract fell to its lowest closing price since May 2020 to close at 3,032 yuan ($427.64) per tonne.
Since then, the price has recovered slightly, closing at 3,196 yuan a tonne last Friday, with no trading on Monday and Tuesday due to public holidays. However, the contract is still down 26% since the start of the year.
Given the apparent weakness in steel, it is perhaps surprising that iron ore imports have remained stable so far into 2024.
China buys about 75% of global seaborne volumes, with imports reaching 101.39 million tonnes in August, down 1.4% from July’s 102.81 million tonnes.
Fixed import
Monthly iron ore imports have been above 100 million tonnes in six out of eight months so far this year, with February being one of the months where it remained below this mark for only 29 days.
Iron ore imports in the first eight months of this year stood at 814.95 million tonnes, an annual increase of 5.2%.
Given that iron ore is not converted into steel, it is used to build inventory.
Port inventories monitored by consultancy Steelhome rose from a seven-year low of 104.9 million tonnes at the end of October to a 27-month high of 151.8 million tonnes in the week ended July 26.
However, there has been a slight decline since then, with production standing at 149.4 million tonnes in the seven days till September 13.
This means that the process of rebuilding inventory is essentially complete, at least as far as port inventory is concerned.
Steel mills have some room to increase factory inventories, especially given the upcoming Golden Week holiday starting on October 1.
Weak price trends also supported iron ore buying to build stocks, with benchmark futures on the Singapore Exchange closing at $91.77 a tonne on Monday, just above a 22-month low of $91.10 hit on Sept. 10.
The contract has fallen 36% since peaking at $143.60 a tonne on the second trading day of 2024 (January 3).
The question for the market is: even if prices are low by the standards of the last 18 months, how long can iron ore imports remain resilient amid weak steel production?
Iron ore imports are likely to remain above 100 million tonnes in September, with commodity analyst Kpler estimating arrivals to be around 105 million tonnes.
But with inventory levels high and steel production sluggish, the risk of iron ore imports is starting to reduce.
The views expressed in this article are those of the author, a Askume columnist.
The views expressed are solely the author’s own. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship in accordance with the principles of trust.
