World’s largest exporter of finished goods, China is on top in gross value of industrial output and iron ore consumption. There are various factors that have slumbered China’s growth, debt ridden economy which was used as stimulus as credit supported industries, industrial overcapacity, environmental challenges, etc.
China’s economic growth settled at 6.7% for the first quarter according to some reports. The country with the vision to keep it between 6.5% and 7% for the year, has stepped into the quarter with the new set of challenges according to experts.
The signs have already started emerging from the industry that is the backbone of China’s economy.
Declining domestic steel prices in China along with fall in export offers
The upward expedition of the global iron ore prices is interrupted by the record high inventories at Chinese ports. Iron ore stocks at Chinese major port have crossed 131 mnt in the first week of April.
The excess supply is still a matter of concern in respect to falling prices, turning the market unpredictable; with widen uncertainty resulting in restricted orders both locally and from importers like India and others.
Another reason to bring prices down was that the Australian Government’s announcement that iron ore prices could settle for USD 65/mt by the year end.
The global iron ore monthly average prices were recorded at USD 70.81/MT against USD 87/MT compared with the March’17 values for grade Fe (62%), CFR China where it touched USD 62/MT on 18 th April.
Steel prices as well have fallen sharply in last one month’s period. For instance Chinese HRC export offers have come down by nearly 20% at USD 415-420/MT FOB China.
Rise in Domestic Production in Q1 CY17 compared to Q1 CY16
The Crude Iron Ore output has increased by 15% in Q1 in 2017 over Q1 in 2016. The last five year trend in crude iron ore output in Q2, a period that is generally considered an active quarter in Chinese industry, show an average 27% growth Y-o-Y over Q1. With these estimates he trend suggest that production for the coming quarter will be around 378.17 mnt Crude Iron Ore that will aggravate the oversupply scenario forcing prices southward.
Increased China iron ore imports in Q1 CY17 compared to Q1 CY16
The similar trend is noticed in Q2 for last five year in iron ore imports by China. The iron ore imports have increased by 12% in Q1 in 2017 over Q1 in 2016. An average quarterly increase of 6% is observed over last five years in Chinese iron ore import in the second quarter that is that gives us estimated quantity of 287.31 mnt iron ore for the coming quarter. As per the numbers in buying for the last two months even after sluggish demand there was an increase of 14% in imports M-o-M. If the trend continues like years before the prices are bound to be affected in negative.
Increased Y-o-Y output of Vale & FMG in Q1 CY17, marginally down by 3% for Rio Tinto
Iron ore production by Brazilian miner Vale increased by 11.20% Y-o-Y in the first quarter of 2017, reaching its highest level for a January-March period.
The miner produced 86.20 million tonnes of iron ore during the quarter, compared with 77.54 million tonnes in the corresponding period in 2016.
Iron ore production by FMG, Fortescue by 3% Y-o-Y in the first quarter of 2017 at 44.7 mnt over 43.4 mnt for a January-March period in 2016.
Rio Tinto’s iron ore sales and output were down due to the unfavorable weather in first quarter of 2017. The miner shipped 76.7 million tonnes of iron ore in Q1-2017 which was similar last year for the period. Rio produced 77.2 mnt iron ore in Q1- 2017, 3% less Y-o-Y.
President Xi Jinping would need to bring in innovative solution as the 19th National Congress approaches ahead this year, he would the growth sustains remaining quarters of the year.
Though the President XI Jinping have decided to undertake reforms which will focus on China’s long-term economic health the country needs to keep its commitment where China has agreed to begin limiting carbon dioxide emissions by 2030 per Parish Agreement as China’s share is little above 20% in global emissions, which poses the risk of overcapacity conflicting with the safe environment policy goals.
The focal point for the leadership is to keep the slowing growth rate of the economy steady if not upward as it down compared to the previous quarter which was at 6.8%. To put the balancing act together the government will need to primarily focus on various internal concerns like bans on low grade material producers, overcapacity and credit cuts to control the interest rates.
Source: Steel 360 Magazine May’17 Issue