Accounting for over 70% of the global Capesize seaborne market, China's influence on the Capesize market is undeniable. Tracking shipments, throughout 2024, AXSMarine data suggest that the three most important commodities for the Capesize market — iron ore, coal, and bauxite — respectively accounted for 85.1%, 4.5%, and 9.6% of all Capesize cargo volumes to China. As 2024 comes to an unflattering end for large-sized freight rates, it is ever pertinent to dissect the outlook for China's Capesize demand in 2025which in turn is associated with demand for these three key commodities.
Background
According to AXSMarine data, Chinese iron ore imports reached 1.25 billion tonnes in 2024, up 52 million tonnes y-o-y. This rise can be attributed to strong restocking demand throughout the year which offset the impacts of declining Chinese pig iron production (the most direct downstream product of iron ore). Consequently, by the end of last year, iron ore inventories at Chinese ports and at steel mills increased by 28.7 and 1.2 million tons y-o-y, respectively. As China's long-term steel demand has evidently peaked, be it from anecdotal observations or factual findings, the key question has shifted to the pace and magnitude of the decline in China’s future iron ore import demand.
Weakened steel demand from the real estate and infrastructure sectors aligns with the "steel consumption peak theory". In turn, this suggests that, as with other countries’ economic development pathways, as China enters a more mature stage of economic development, per capita steel consumption will peak and gradually decline thereafter. Against this backdrop, Beijing is actively reducing national steel production capacity through mergers and acquisitions while exploring new sources of steel demand growth to navigate a “soft landing” for the industry.
The current approach primarily involves two strategies: increasing steel exports and focusing on advanced manufacturing aka the "New Three." Last year, according to Chinese Customs, China's steel exports exceeded 100 million tons, significantly alleviating domestic oversupply. However, with the rise of trade protectionism, potential increases in anti-monopoly and anti-dumping investigations are casting a shadow over Chinese steel exports. The "New Three" refers to electric vehicles, lithium batteries, and solar panels which are serving as fresh growth drivers for steel demand. These smaller sectors aim to collectively offset the decline in demand from larger sectors such as real estate and infrastructure. Overall, according to a recent forecast from the China Mineral Resources Institute, Chinese steel production will decline to 900 million tons by 2030, compared with an estimated 986 million tons last year. This implies an average annual decrease of 1.5% over the next 5 years, lower than last year's 2.8% year-on-year drop. Although the reduction in steel production may be gradual, under the overarching trend of declining steel output, a more pressing hypothesis arises: is the insatiable rise of seaborne iron ore coming to a thumping end?
As part of its "Cornerstone Plan", China is committed to increasing domestic iron ore concentrate production as well as boosting scrap steel utilization, the latter of which also aligns with China's broader decarbonization policy. The China Mineral Resources Institute also estimates that in the next five years, domestic iron ore concentrate production will reach 350 million tons (CAGR 2%), while scrap steel consumption will rise to 300 million tons (CAGR 25%), significantly reducing aggregate demand for potential seaborne volumes.
To be clear, the "Cornerstone Plan" is not entirely bad news. Another key component of the plan is China's investment in overseas mines. Following years of planning and preparation, Simandou, China’s key overseas equity mine, should start production by end-2025. However, by the time of writing, there were reports suggesting that despite a potential start-up, stable shipments in 2025 may not be achieved until next year. Nonetheless, Baowu Group is expected to push for at least one shipment of iron ore in 2025 to act as a project milestone. Optimistic forecasts suggest Guinea's iron ore exports could reach 1.5 million tons in 2025 which should be the equivalent of eight shipments which if proved correct should act as a support crutch for market sentiment.
Beyond Simandou, and based on the inhouse tracking of global mining projects, we anticipate some mines (including Vale, Australian Western Range, Iron Bridge and Ashburton) will come online in 2025, further driving an increase in international iron ore availability. It suggests that the market shall shift from a tight supply-demand balance to one of gradual oversupply. For example, Mysteel projects that based on a benchmark CFR 62% iron ore price of $90/t basis Qingdao Port, global iron ore production could rise by 36 million tons year-on-year in 2025. Excluding additional production from China and India (which does not affect seaborne volumes), the theoretical increase in global seaborne iron ore is estimated at around 20 million tons.
All told, the combination of declining Chinese downstream steel demand and increasing upstream global seaborne iron ore supply will shape China’s Capesize iron ore demand this year. These opposing forces suggest that, in 2025, China's seaborne iron ore imports will likely remain flat compared to 2024 and continue to be supported by partial restocking demand driven by weakening iron ore prices. In comparison, the average CFR price of iron ore in 2024 was $110/t.
With total seaborne import volumes not expected to retreat, the demand for Capesizes to ship iron ore to China is projected to stay stable. However, without significant increases in Guinea's iron ore exports, C5TC’s upside is unlikely to see a significant boost from fronthaul iron ore routes either.