Iron ore demand robust even as China’s economy slumps
Iron ore demand in China has proven robust even amid a domestic property crisis and a sluggish revival from the pandemic, data suggests.
The key steelmaking ingredient – and often a primary indicator of productivity and consumer demand – has not suffered a corresponding sharp drop in valuation despite China’s economic struggles.
Prices sagged earlier this year, but have since recovered with iron ore placed at $115.85 per tonne on the Chinese futures market and at $114.45 per tonne on the Singapore Exchange heading into next week’s trading,.
This is well above the key $100 milestone, with the commodity rallying even amid challenging headwinds.
Meanwhile, China’s purchasing managers’ index for July was still below 50 – the point of expansion – at 49.3pts, despite a two-point rise.
This reflected a worsening property slump with housing giant Country Garden on the verge of defaulting, with property investment contracting 7.1 per cent in the first seven months of the year, according to the National Bureau of Statistics (NBS).
These shortfalls were alongside declining credit growth and softer than expected consumer spending.
However, commodities such as iron ore are proving markedly resilient, with volumes of imports from the world’s largest commodity buyer rising this summer.
Refinitiv tracking data – first cited by news agency Reuters – calculated Chinese imports of iron ore rose to 106.1m metric tonnes last month, its most robust demand period this year.
For the first seven months of the year, customs data show iron ore imports are up 6.9 per cent to 669.5m tons, despite the real estate sector typically making up to 40 per cent of demand.
In the last major slump of 2015-16, prices plummeted below $40 per tonne, causing a Chinese steel surplus in the world market – dragging down global prices.
By contrast, iron ore imports have been propped up by the rebuild port inventories, which dropped to a three-year low of 116.9m tons in the middle of last month – below the historical norms for this time of year.
Elsewhere, spending growth on railways is running at 25 per cent year-on-year in the first seven months of 2023, while machinery manufacturing has risen 15 per cent and auto output has grown 12 per cent – NBS data reveals.
There’s also a vast ramp up in renewable energy development, with data from research firm Mysteel (first reported in Bloomberg) revealing that demand for plate steel used in ships, bridges and wind turbines rose 8.1 per cent in the first five months of the year.
China is now the world’s largest offshore wind producer, and steel plates account for about 10 per cent of domestic demand – boosting purchasing activity even as categories covering construction, machinery, appliances and cars were flat or slightly lower.
This reflects the bullishness of Australian miners such as BHP Group, Fortescue and Rio Tinto which have all suffered a downturn in profits recently – with three-year lows in earnings from initial dips in iron ore pricing.
But Rio chief executive Jakob Stausholm believed his company still has “a clear pathway to building an even stronger Rio and continue to gain momentum in our strategy to set the business up for long-term success.”
BHP also confirmed it’s seeing “solid demand from infrastructure, power machinery, autos and shipping, offsetting weakness in new housing starts and construction machinery.”