IRON ore in China: Imports ease in April amid gloomy glance

Reasons

China’s April iron ore down, due to vessel-tracking and port data suggesting a decline of several million tonnes from the near-record levels recorded in March.

83.27 million tonnes of the iron ore was dismissed at Chinese ports in April. Down 3.7 percent from March’s 86.46 million.

The vessel-tracking and port data often show numbers below the official Chinese customs data. Who reported 95.56 million tonnes of iron ore imports in March. That would be the second-highest on record. The ship data does point to lower imports in April. About 3 million tonnes.

China’s largest suppliers

It seems that much of the decline in iron ore imports was borne by Australia. Being China’s number one supplier, with the data showing imports of 53.9 million tonnes in April. Down from 58.9 million in March.

Rather, second largest supplier Brazil saw Chinese imports of 18.48 million tonnes in April. UP from March’s 16.54 million.

The lower imports from Australia in April are the result of earlier weather-related disruptions. There was rainy period in Western Australia state that affected both mines and rail networks.

This means imports from Australia are likely to recover again in May, which may be a bearish signal for prices if miners such as Rio Tinto, BHP Billiton and Fortescue Metals Group decide to chase volumes over prices.

Forecasts & Opinions

This can already partly be seen by the 11 percent jump in iron ore shipments from Port Hedland, the terminal used by BHP and Fortescue, to 34.86 million tonnes in April from 31.5 million in March. Sailing time lasts of around two weeks between northwest Australia and China.

Ultimately iron ore prices are driven by steel prices and margins, and here the outlook is less certain, with the main Shanghai rebar contract trending lower in recent weeks. Because the resilience of China’s infrastructure and construction spending.

Chinese steel

While Chinese steel output has remained robust so far this year, the market seems to be rolling toward the opinion that margins will be under pressure. Specially in the second half of the year as domestic demand growth slows and exports struggle.

Already Chinese steel mills are seeing lower exports, with shipments of products sent overseas slumping 25 percent to 20.72 million tonnes in the first quarter of this year compared to the same period last year.

Exports are the key factor for the 800 million tonnes-a-year Chinese steel sector. And a significant downturn is another important factor for the industry.

Iron ore prices

Spot Asian iron ore prices have performed worse than Chinese steel rebar futures in recent weeks. Dropping 28 percent from a peak of $94.86 a tonne on Feb. 21 to $68.68 on Wednesday(May 3rd).

The sharp decline is partly due to the strong rally over the past 13 months, which saw prices almost triple. Sending iron ore to levels that appeared well overbought. Given the market remains well supplied and will have to absorb more than 100 million tonnes of new low-cost production from Australia and Brazil this and next year.

While China buys about two-thirds of seaborne iron ore, this still leaves one-third that can influence the market. Recent news are pretty positive for the major exporters.

• Japan’s imports of iron ore in April reached the highest since vessel-tracking data started in January 2015. With 11.62 million tonnes discharged during the month, up from 10.45 million the prior month.  Asia’s third-largest importer, South Korea, saw 7.17 million tonnes offloaded in April, the most since October 2015, according to the data. (Reuters)

April’s fall in China’s iron ore imports is related to earlier weather issues in Australia. Considering the info that shipments have already recovered, there is unlikely to be any supply tightness.

So the price is exposed to Chinese demand, and then the outlook is less certain and will depend on how much spending stimulus the authorities in Beijing consider suitable.