BY CAMERON DRUMMOND
CHINESE steel exports to global markets is increasingly volatile as it tackles industry reforms to decrease pollution in a period of slowing domestic demand.
The world’s largest steelmaking nation is reporting an increase in steel stockpiles due to sluggish demand, which has led to decreased demand for raw steelmaking materials and a drop in iron ore prices.
Steel exports are down 30.5 per cent in 2018 compared with the same period last year.
According to data from Steelhome Consultancy, rebar inventories held by Chinese traders rose to 9.79mt during March, the highest since April 2013.
The looming possibility of a trade war between China and the US has also reduced confidence in the steel and ore markets, according to Platts.
Fortescue Metals, which produces iron ore content of between 56 per cent and 59 per cent, lowered its FY18 price guidance to 65 per cent of the average 62 per cent Fe CFR index due to sluggish Chinese demand.
During Q4 2017, Fortescue received 66 per cent of the benchmark price.
“The updated guidance reflects a slower than anticipated recovery in contractual realisations due to Chinese construction activity remaining subdued, the extension of temporary production restrictions in certain Provinces in China as well as speculation regarding the potential impact of global trade tensions,” FMG said in a statement to the ASX.
However, the miner was optimistic that market conditions would stabilise, as it expected stronger demand for lower iron content ores as steel mill margins moderate and end users looked to lower their raw material input costs.
The latest S&P Global Market Intelligence analysis shown at the 21st Annual Global Iron Ore & Steel Forecast Conference said many factors presented large-scale uncertainty for iron ore and steel markets.
“China’s iron and steelmaking industries are experiencing difficulties as competition increases to determine industry champions,” S&P Global Market Intelligence senior commodity analyst Maximilian Court said.
“Supply-side reform is less encouraged by the industry’s current economics than by Government policies, and these conflicting interests between Government and business will have to be carefully managed by market agents over the near term.
“We believe that short-term price expectations for mid-grade iron ore remain skewed to the downside.
“We see prices declining this year to an annual average of $US66 per dry metric tonne (dmt) CFR, and will continue to decline to an annual average price of around $US64/dmt CFR by 2020.
“We continue to expect large-scale volatility as premiums on higher-grade iron ore products are contested and environmental trends, trade tensions and interest rates continue to add uncertainty to the global iron ore market.”
In the medium to long term, domestic demand, which currently accounts for about 24 per cent of steel production in China, is expected to steadily increase under China’s Belt and Road Initiative – a new trade route from east to west that will require significant amounts of raw materials, including iron ore, in 2018 and beyond.