All those local and international ‘experts’ who claimed the recent slide in the world iron ore price would cause a crunch in China’s steel industry and damage Australia exporters, will have to take another look at their doom and gloom forecasts, again, after China yesterday reported a surprise surge in key imports in April.
Not only did iron ore imports hit the second highest level on record, but oil imports, an even better indicator of the heath of the Chinese economy, hit an all time high.
Imports of copper surprised on the upside by turning out to be much stronger than expected, especially compared with a year earlier, while soybean imports leapt 63% from April of last year.
Now some of these imports of iron ore and copper could be part of the shadow banking financing system where the imports are used as collateral by steel mills to finance their business (through letters of credit) or by speculators or financial groups playing in the cooling property market.
The Chinese central bank is reportedly taking a tougher line on the use of letters of credit by speculators and some steel companies and other importers as the central government tries to shut old and heavily polluting plants in the north and central provinces.
But with prices of some steel products weakening and high levels of iron ore stockpiles, you’d be right in asking if the bears’ hopes for a crunch might be a bit closer than we think.
However this has been the situation now for the past six months, and for periods of months before that, and yet the sky hasn’t fallen – except in the July – September period of 2012 when world iron ore prices got down to a very low $US87 a tonne and shook the likes of Fortescue Metals.
But the fact remains that for the second time this year China’s iron ore imports have topped the 80 million tonne mark – more than 86 million in January and 83.4 million tonnes last month – which was up 12.75% from March and a huge 21% from April 2013.
The increase seems to have been driven in part by the dip in world prices to well under $US110 a tonne in the month, and reports of falling domestic output as the government tries to rationalise the domestic iron ore mining industry.
Iron ore imports in the first four months of 2014 were 305.3 million tonnes, were up a huge 21% year on year.
That confirms the solid iron ore export figures being reported by BHP Billiton, Rio Tinto, Fotescue (and yesterday Arrium, the old OneSteel).
Reuters commented that the "April rise was driven by high production rates at Chinese steel mills over the month, caused by a pick-up in seasonal demand, although slower-than-expected growth had dragged rebar prices down by 3% in April, the fifth consecutive monthly loss”.
Rebar is used in construction (it’s a contraction of ‘reinforcing bar) fell to the lowest level on Thursday since the futures contract covering the product started in 2009, another bearish sign for steel and iron ore.
Average daily crude steel output continued rising in mid-April, hitting 2.28 million tonnes from 2.152 million tonnes in the first 10 days of the month, data from the China Iron & Steel Association showed.
Iron ore stockpiles at main Chinese ports hit a record high of 112.63 million tonnes at the end of last month.
The data from China helps explain the record level of iron ore exports to China from Port Headland in April.
Port Headland is used by BHP and Fortescue, plus a couple of smaller producers. Dampier is the main port for Rio Tinto’s mines.
Shipments to China from Port Headland totalled 28.9 million tonnes, up from 27 million tonnes in March and just 19.3 million tonnes in April 2013.
Total exports were also a record 34.8 million tonnes last month, up from 34.4 million tonnes in March and 26 million tonnes in April 2013, the data show.
The strong demand for iron ore from China has come as prices for ore have fallen this year.
Standard Australian ore with an iron content of 63% and deliverable from Port Headland to the Chinese port of Tianjin fell to $US103.70 a dry tonne on Thursday. That was, the lowest level since September 2012, according to Bloomberg, It was a daily fall of 1.3% and takes the price fall this year to 23%.
It is clear the Chinese mills have stepped up their buying as prices have fallen, but such is the level of oversupply, the aggressive buying hasn’t impacted the world price.
Chinese copper imports rose 7.2% in April from the previous month, extending gains made in March as stronger domestic prices boosted their appeal.
Seasonal consumption also supported demand in the world’s top copper consumer, along with global prices that have fallen more than 9% so far this year.
Imports of copper anode, alloy, refined metal and semi-finished copper products totalled 450,000 tonnes in April, up from 420,000 tonnes in March, customs data showed on Thursday.
April’s imports surged 52% from April 2013.
And China’s oil imports totalled 27.88 million tonnes in April, equivalent to a record 6.8 million barrels a day, according to the data from China’s Customs Administration.
April’s new record daily level topped that set in January, when they hit 7.7 million barrels a day.
China imported 28.16 million tonnes of crude in January, which remains the record for crude imports on a monthly basis.
Meanwhile, April’s imports were 20.8% higher than the 23.08 million tons of crude imported in April 2013, and up around 18.5% from 23.52 million tonnes in March.
And imports of another key commodity – soybeans – soared in April.63.5% from the same month in 2013, official customs data showed on Thursday.
Reuters reported that soybean imports were up more than 63% from April 2013 at 6.5 million tonnes (the highest so far in 2014).
That was also up 41% from March, when they fell.
Imports in the first four months of the year are up 41% at nearly 22 million tonnes, another positive sign for the economy.
