China’s iron ore imports tell the story of the country’s commodity demand for the year and hint at what we can expect for much of the coming 12 months – uncertainty and more confusion.
While it was the third year in a row that Chinese iron ore imports have topped the billion-tonne mark, some analysts reckon this year will see a further easing and worry about the impact of political and health factors such as the appearance of Covid omicron in Beijing for the first time at the weekend.
It is already in several other cities in the north and in the south and the government has restricted movement in seven cities and provinces to try and control it and the continuing rise in delta infection cases.
There won’t be a harsh lockdown nationally – even though five cities are under lockdowns of varying intensity – until after the Winter Olympics and the Lunar New Year holiday which starts February 1. (The games are due to start February 4.)
A lockdown involving the biggest festival of the Chinese year would be a bad look for President Xi and his campaign to secure his third term as President.
So the outlook for commodity imports for China in 2022 is looking more and more confusing and hard to get a clear picture.
But the performance in the iron ore market in 2021 gives us a clue.
Iron ore imports dropped 4.3% last year to 1.12 billion tonnes from 2020’s all-time high of 1.165 billion tonnes.
2021’s total was just above the 1.07 billion tonnes imported in 2019.
Analysts say they expect iron ore imports to fall to just over 1 billion tonnes this year on weaker demand caused by the slide in property and construction and the impact of Covid infections.
Iron ore prices though have started strongly this year with wet weather in Brazil curtailing shipments and sending prices for 62% Fe fines past $US130 a tonne (from $US87 or so lows) in November.
Figures from the General Administration of Customers showed on Friday China imported 86.07 million tonnes of the raw material, down 18% from November’s 105 million tonnes (a 16 month high as Chinese steel mills took advantage of low prices) and from 96.74 million tonnes in the same month of 2020.
After 2021’s two stage year, analysts say the coming year could more uncertainty.
China consumed iron ore at a rapid rate in the first five months of last, sending prices to record levels in May (when the price of 62% Fe fines topped $US237 a tonne).
Demand was backed by robust steel production as mills enjoyed decent profits underpinned by a recovery in activity in building and construction after the first waves of the coronavirus pandemic.
However, imports then started to contract on an annual basis as authorities urged steel mills to cut production to meet an annual target of keeping crude steel output flat and curbing carbon emissions. Slowing construction activity also muted downstream demand for the industrial metal.
From June to December China’s iron ore imports slid nearly 10% from the same period of 2020. Chinese iron ore prices fell 45% in that time as well.
A government-backed consultancy expects iron ore imports to continue to decline to around 1.08 billion tonnes in 2022 on falling steel production and increasing usage of steel scrap.
The customs data on Friday also showed the country’s steel products exports jumped 24.6% to 66.9 million tonnes in 2021 from a year earlier, though mills and traders had been urged by Beijing to ensure supply for domestic market. The surge in steel exports followed the change of President in the US.
China’s steel imports last year dropped 29.5% to 14.3 million tonnes, according to the customs data, even though the country cut taxes to try and stimulate imports of semi-finished steel products to help control pollution.
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Confidence seems to be sky high in the oil and gas industry as the Russian posturing around Ukraine, production problems in Libya, solid demand and weakening stocks saw prices rise by 6% last week.
Brent crude futures rallied 1.9% to a two-and-a-half month high of $US86.44 a barrel and US West Texas Intermediate crude jumped 2.6% to $US84.28 a barrel.
US oil futures rose 6.2% for the week to $83.82 a barrel, within 1% of a multi-year high, as those rising tensions between Russia and Ukraine boosting concerns over a potential disruption to global crude supplies.
A big indicator of the high levels of confidence was the biggest rise in the number of oil and natural gas rigs in a week since April as rising oil prices prompt more drillers to boost their exploration and production activity.
The total number of oil and gas rig rigs, an early indicator of future output, rose 13 to 601 in the week to January 14, its highest since April 2020. Gas rigs rose two to 109, their highest since March 2020.
The total count was up 228, or 61%, over this time last year.
The number of rigs drilling for oil rose by 11 to 492 in the latest week, up sharply from 2021 lows but still well shy of the 700 active prior to the onset of the pandemic, according to oil services group, Baker Hughes.
With oil prices up about 12% so far this year after 2021’s 55% surge, a growing number of oil and gas firms say they plan to raise spending for a second consecutive year in 2022.
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Gold ended the week higher as investors expect inflationary pressures to continue climbing.
February Comex gold futures settled at $US1,816.90 an ounce, up more than 1% on the week.
In the US, inflation ran at the hottest pace since 1982 in December, rising 7% over the past 12 months. But in China cost pressures eased with both consumer prices and producer prices easing.
The sharp 1.9% fall in retail sales in December surprised markets and added a cautionary note to bond bears.
US bond yields rose to 1.79% on Friday near a two-year high of 1.8080% struck earlier last week. Two-year Treasury yields hit a high of 0.9730%, a level last seen in February last 2020.
European bond yields also rose as investors focused on monetary policy tightening by central banks, though sharp falls in Germany’s benchmark 10-year yield earlier this week led it to notch its biggest weekly fall in 10 weeks.
In Asia, the five-year Japanese government bond yield jumped to its highest since January 2016 and the yen rose after Reuters reported that Bank of Japan policymakers are debating how soon they can start an eventual interest rate hike – a report that was a considerable surprise.
Copper and silver also ended the week with small gains – the former up 0.1.16% and the latter, 2.6%.
The two big drivers for gold going forward will be the US dollar and bond yields. The greenback has eased but on Friday steadied a while with the Aussie dollar down to just over 72 US cents for a loss of 1% on the day.
