So far there’s no sign of a slowing in the pace of Chinese iron ore imports, even though the government continues to pressure steelmakers to keep crude steel output at 2020’s 1.065 billion tonnes.
Simplistic claims that falls in recent months in monthly and cumulative totals for imports of iron ore, oil, copper and some other key commodities ignore the impact of the surge in prices over the past year.
A year ago, Chinese buyers took advantage of sharp falls in the prices of key commodities like iron ore, coal, copper, lead, zinc and oil and stocked up.
That saw import volumes of key commodities such as oil surge after prices fell to multi-year lows in the wake of the lockdowns (hitting a negative $US37 a barrel for US crude in April).
Copper prices fell under $US3 a pound and iron ore prices slumped to less than $US100 a tonne in the depths of the selloff in March, 2020, and by the end of July had rebounded to around $US110 a tonne.
But that was still less than half the all-time high of $US237 a tonne (for 62% Fe fines) in May this year. It has fallen sharply since but the price of $US172 a tonne on August 6 was still 70% higher than a year ago by.
Falls in tonnages this year, especially oil, and copper reflect the over ordering last year to take advantage of the low prices (copper for example fell to a low of $US2.77 a pound on Comex – it was around $US4.23 on Monday and hit an all-time high of $US4.77 a pound in May).
Imports of iron ore in July fell 12.06% to 88.51 million tonnes last month from July 2020 when tonnage hit a record high of 112.7 million tonnes. July’s total was little changed from the 89 million tonnes or so imported in May and June.
China’s trade data for July revealed a small 1.5% (10 million tonnes) fall in iron ore imports to 649 million tonnes from the 2.6% rise (to 560 million tonnes) in the June half year.
“Domestic consumption (for iron ore) is weakening significantly… due to different perception of crude steel output cuts, iron ore prices have been fluctuated recently,” analysts with Huatai Futures wrote in a note.
China has asked mills to keep this year’s crude steel output to no more than the 2020’s 1.065 billion tonnes after the first-half production grew nearly 12% compared with a year earlier.
While there’s no sign yet of a slide in iron ore imports larger than can be accounted for by the usual weather, technical and shipping problems in the Pilbara and Brazil, there was a hit that the new policy was having an impact on Chinese steel exports.
China’s finished steel exports totalled 5.67 million tonnes in July, down 789,000 tonnes or 12.2% from June, according to the July trade report from China’s General Administration of Customs.
Chinese market sources stated that the fall in steel exports last month relates directly to China’s removal of tax rebates on finished steel shipping abroad. The removal of those rebates are designed to cut exports and to put pressure on steel mills to trim production.
Chinese mills export surplus steel after domestic demand has been met – by forcing production to slow the government thinks it will cut overall production.
But there is a way to go as China’s exports of finished steel products hit 43.1 million tonnes in the seven months to the end of July, up 31% on the same period of 2020. Obviously there is a way to go before the new policy has the desired impact.
From May 1, China had removed the tax rebates on 146 steel products including hot-rolled coil (HRC), one of the country’s most-traded steel products, and then on August 1, removed the rebates on another 23 including those on cold-rolled coils (CRC) and galvanised steel (GI), both popular products for export,
The other part of the government changes was to drop tariffs and taxes on imports of semi-finished steel and steel products so as to allow steel mills to buy foreign sourced product as cheaply as possible and then process it in China.
That would reduce the emission of carbon and other polluting emissions from steel making furnaces and from sintering and coke making plant. China has already stepped up imports of coke from foreign producers such as BlueScope in Australia.
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Chinese imports of crude oil dipped to still considerable 41.24 million tonnes in July, or 9.71 million barrels a day (bpd), according to the official customs data released on August 7.
This was down from June’s 9.76 million bpd, slightly above May’s 9.65 million bpd, and below April’s 9.82 million bpd.
July was the fourth consecutive month that crude oil imports were below 10 million bpd, a far cry from most of 2020, when imports surged from May to November as refiners stocked up on crude bought cheaply at the height of the crash caused by the coronavirus pandemic and a brief price war between top exporters Saudi Arabia and Russia.
At that time imports rose as high as a record 12.94 million bpd in June last year (iron ore imports peaked at 112.6 million tonnes in July) but apart from a brief spike higher in March this year, 2021 has been a story of declining crude purchases by China.
Crude imports for the first seven months of this year are 5.6% below that for the same period in 2020.
Imports of natural gas, both from pipelines and as liquefied natural gas (LNG), also declined in July to 9.34 million tonnes from June’s 10.21 million tonnes.
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Copper imports also fell for a fourth straight month, with China buying 424,280 tonnes of unwrought metal, down from June’s 428,437 tonnes and only slightly more than half the record 762,211 tonnes from July last year (which were bought at prices under $US3 a pound).
As prices rose to all-time highs in May and remained well above $US4 a pound in June and July, China cut the volume of copper imports.
Trade data shows that the country imported 3.219 million tonnes of unwrought copper and copper products in the first seven months this year, down 10.6% compared with the same period in 2020 which was a record year for imports.
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Coal was the exception to the weakness in China’s imports of major commodities, with shipments in July reaching a 7-month high of 30.18 million tonnes, from 28.39 million in June and 26.1 million in July 2020.
Coal imports for the January-June period were down 15% from the same period in 2020, mostly due to the sharp fall in the first three months as China struggled to fill the gap left by the ban on Australian imports.
ironically China was forced to chase down more coal acriss Asia (but not in Australia) just as demand surged for thermal and steelmaking coal in Japan, South Korea, India and Taiwan, which sent prices racing well over $US160 a tonne for thermal coal (double a year ago) and coking coal by more than 50% to over $US220 a tonne.
Those rises have seen the price of coal from Indonesia, Mongolia and Russia, as well as the uS surge as well to levels well above those of a year ago, just as China’s power stations suffer a shortage of stocks.
