Strong Chinese import demand overcomes fears of global steel oversupply
Iron ore prices have begun soaring since September 2009 from a bottom of $80-$84 per tonne and are now nearing their recent peak of $110-$112 per tonne of early August 2009. The cash prices for Indian iron ore exported to China have been hovering above $100 per metric tonne on higher freight costs, increased Chinese demand and disruption in Indian supply.
Even the China International Capital Corporation (CICC) comments that steel demand in China may consume 12% of iron ore next year thanks to booming property and auto demand. CICC expects China’s domestic crude steel consumption to increase to 606 million metric tonnes in 2010. India-China freight charges have shot up to $24 per tonne from about $16 per tonne.
In India, the Orissa government has ordered to halt work in 50 mines because they did not have proper documentation and did not meet environmental norms. This has severely affected Indian supply. If the Indian bottleneck continues, iron ore prices are expected to hit higher levels. As per market sources, the cash price for Indian iron ore exported to China is expected to rise by about 4% by the end of November 2009.
In the first 10 months of 2009, total iron imports by China rose 37% from a year earlier despite a lull in October 2009. According to China customs data, year to end-October 2009 iron ore imports were 514.8 million tonnes (MT), compared to 469.3MT between January 2009 and September 2009. China’s iron ore imports fell by almost 30% in October 2009 from September 2009. It imported 45.5MT of iron ore in October 2009, 19MT less than the record 64.5MT imported in September 2009. Meanwhile, imported iron ore inventory at China’s major ports fell to 65.74MT as of 16 November 2009 from 66.96MT as of 9 November 2009, indicating strong demand.
But the major concern has been the steel oversupply scenario. China Iron and Steel Association (CISA) has warned that oversupply in the Chinese steel sector could worsen in the fourth quarter and in early 2010. China’s crude steel output was 420.40MT, up 7.5% year-on-year in the first nine months of this year. In October 2009 alone, Chinese crude steel production growth has sharply grown by 42% year-on-year to 51.75MT.
Meanwhile, the entire year’s output is estimated at 550MT, up 50MT or 10% from 2008. China’s apparent steel demand rose 20% year-on-year in the first nine months, to 421.80MT, mainly driven by the government’s expansion of fixed asset investment, and the growth is predicted to sustain into the fourth quarter and early next year. Surprisingly, in October 2009, the investment in China’s fixed assets and real estate has been below expectations. Investments increased by 33.2% in the first 10 months, but were down by 13.2% monthly, which is the largest monthly reduction over the past decade.