The Tangshan pollution control story continues to buffet iron ore prices and there will be more to come as Chinese steelmaker adjust imports to take account of the restrictions chopping more than 30 million tonnes.
The impact on Australia is prospective at this stage, but there has been a noticeable slid in the value of iron ore exports from December to February, driven by lower volumes in January and February and lower prices last month.
The fall is a hard to ignore 33% or so, or $4 billion in lower export income.
Now the doubts about the situation in Tangshan could add pressure on volumes in coming months.
Just how much will eventually be cut remain to be seen, as the brawl over pollution could very well be a power struggle between steel companies and local authorities in Tangshan.
Tangshan accounts for around 144 million tonnes of crude steel output a year – about 14% of China’s annual output in 2020, so it has a substantial impact on iron ore demand.
From what’s happening in futures and in the daily markets in Asia, the price of 62% Fe fines is coming under greater pressure than that for the 65% fines (which come mostly from Brazil).
That’s due to the preference of steelmaker at times of pollution problems to buy higher quality iron ore for its greater yield and lower sintering requirements.
The premium between 65% Fe fines ($US189.20 on Wednesday) and 58 Fe fines (145.71) was around $US42 a tonne – that was up $US3 a tonne from the previous Wednesday when the Tangshan story started breaking and an indicator of the higher demand for 65% ore. In fact the price of 65% ore edged up 90 cents a tonne on Wednesday of this week while the price of 62% fines dipped by 3 cents a tonne.
Thursday saw a repeat – a fall of $US1.54 a tonne in the price of 62% Fe fines to $US159.85, but a rise of $US1.20 a tonne for 65% fines to $US190.40.
That’s an important indicator of changing demand patterns in China at the moment and hints at emerging downward pressures on the price of our key export product, 62% Fe iron ore fines to China.
That switch to 65%% Fe fines (they are not as plentiful as the 62% fines from Australia or parts of Brazil) helps explain why Fortescue Metal’s share price had been hit hardest of the three major miners (BHP and Rio are the other two).
Fortescue shares are down 4.4% in the past five days and more than 23% in the last month. Rio shares are down 2.5% in the past five days and 16% over the month while BHP shares are off only 1.7% and 11% in the last month (BHP has coal, oil, copper to cushion itself against weaker iron ore prices, Rio has copper (and some aluminium), Fortescue is a pure iron ore play selling 58% to 60% fines that are not as desirable as they were in late 2020.
Australian iron ore exports are down more than 12 million tonnes in January (7.2 million) and February (down 5.2 million tonnes). The impact of the fall in volumes has been disguised by the high prices compared to a year ago. The fall in the value of iron ore exports in February was mostly due to the lower volumes.
The value of iron ore exports to China was $8.531 billion in February, down from $9.665 billion in January and $12.510 billion in December which was the all-time high.
That means the value of iron ore exports has fallen by a third from December to February with the drop in volumes to China playing a major part.
Meanwhile world crude steel production in the member countries (64) of the World Steel Association (worldsteel) rose 4.1% in February to 150.2 million tonnes from February 2020 (when the pandemic hit Chinese production hardest of all).
China is estimated to have produced 83.0 million tonnes in February 2021, up 10.9% on February 2020 (and 175 million for the first two months of the year).
Indian production fell 3.1% to 9.1 million tonnes (Mt), down 3.1%. Japan produced 7.5 Mt, down 5.6%. The United States produced 6.3 Mt, down 10.9%. Russia is estimated to have produced 5.7 Mt, down 1.3%. South Korea produced 5.5 Mt, up 1.2%. Turkey produced 3.0 Mt, up 5.9%.
Germany produced 3.1 Mt, down 10.4%. Brazil produced 2.8 Mt, up 3.8%. Iran is estimated to have produced 2.3 Mt, up 11.5%, according to a truncated report from the World Steel Association.
