As China’s iron ore imports climbed 7% year-on-year during January-April, apparent steel demand dropped by -6%, with iron ore inventory rising.
Real estate still faces severe difficulties, but manufacturing has performed better.
Squeezed steel mill margins increased Chinese interest in Indian low-grade iron ore, resulting in Supra/Ultramaxes benefitting from the country’s yearly import growth in January-April.
A seeming discrepancy exists between the strong pace of iron ore imports in 2023-24 and somewhat disappointing levels of steel demand and production.
In the first four months of 2024 iron ore imports into China jumped 27m tonnes (+7%) to 412m tonnes, echoing the corresponding leap of 30m tonnes in January-April 2023, customs data show.
At the same time—paradoxically—the country’s crude steel output retreated -3% YoY, with apparent steel demand (in other words, steel production, plus imports and minus exports) sliding -6%.
This in part demonstrates the large contribution from continuing expansion in net steel exports to production levels. Net exports grew by an additional 7m tonnes (+28%) YoY in January-April.
Crucially, iron ore port stockpiles in China have jumped a massive 30m tonnes from end-2023 to 144.7m tonnes by 24 May, data from SteelHome show. This involved an unbroken sequence of gains numbering 17 weeks.
There is another angle to consider.
It should also be noted that the 7% yearly increase in China’s iron ore imports reported by customs authorities is not reflected in some shipment data, which record similar volumes for 2024, but fewer for 2023.
What of the well-documented real estate crisis in China?
In 2022-23 additions to China’s production capacity of hot rolled coil (HRC), a steel product used in manufacturing and exported directly, have helped support output levels.
Meanwhile, measures to support the real estate market have yet to deliver substantial improvement.
Earlier this month, the Ministry of Finance issued 1 trillion yuan ($138bn) of long-term special government bonds to increase liquidity in financial markets. However, of eight industries targeted for bonds, only urban is steel-intensive. Other measures announced this month included lower mortgage rates and downpayment requirements for homebuyers.
As yet, there has been little upward move in Chinese steel prices to suggest a firm shift in market fundamentals. Prices of rebar, a construction steel, may have edged higher in May, but still lag February’s levels.
Steel mill margins have been squeezed.
In January-April operating income in the steel sector dropped by -4.2% YoY, whereas total profit across all industrial enterprises increased by 4.3%, according to the National Bureau of Statistics.
China’s iron ore imports from India
Lower steel mill margins have incentivised purchases of lower Fe-content ore from India.
In 2023 India overtook South Africa to become the third-largest exporter of iron ore to China (after Australia and Brazil).
Moreover, at 16.5m tonnes, the Q1 was the strongest quarter for Chinese imports of Indian iron ore since 2011.
With April being a slower month for Chinese imports from India (confirmed at 2.6m tonnes) and monsoon rains likely to suppress Q3 volumes, near-term slowdown can be expected.
It is certainly possible though that the Chinese annual import total ex-India of 36.6m tonnes in 2023 could be surpassed this year.
From a shipping perspective, Supra/Ultramax demand has been a (perhaps surprising) beneficiary of China’s iron ore import preferences.