Thursday, April 09, 2009
China iron ore imports hit record 51 mln tones
Thursday, 09 April 2009
China's iron ore imports surged to a new record in March, its transportation ministry said on Wednesday, the latest sign of tumbling spot prices and relatively strong domestic demand in the world's largest steel producer. China imported a record 51 million tonnes of iron ore in March, preliminary data from the ministry showed, taking total purchases in the first quarter to 130.5 million tonnes, up 18 percent from a year earlier.
China will release official March trade figures later this week or early next week.
The rise mirrored Chinese steelmakers' increasing reliance on imported ore, analysts said, though mills are still locked in annual price talks with global mining majors BHP Billiton, Rio Tinto and Vale.
"Recovery in production and lowering spot prices of imported iron ore drove steelmakers to buy more in the first quarter," said Macquarie Bank analyst Henry Liu.
"The concentrated purchases in a concentrated period squeezed domestic iron ore miners' margins, pushing some of them out of business. Then steel mills had to buy imports," Liu said.
Already spot iron ore prices are quoted below Chinese local prices because of falling freight rates and rising domestic mining costs, forcing around 70 percent of China's mining capacity out of operation.
The import surge, just when global iron ore demand is expected to contract for the first time in more than a decade, reflects a recovery in production at Chinese steel mills, spurred by the government's economic stimulus package.
China is the sole global producer which is increasing output, although Beijing is aiming now to curb production by 8 percent this year as massive overcapacity -- amounting to the total annual production of second-ranked Japan -- threatens recovery.
The increased imports bring relief to global iron ore miners struggling with tumbling prices, as voracious Chinese demand can offset declining consumption from other parts of the world where steel output has fallen by as much as 50 percent.
"The bulk of the imports are supplanting domestic material which cannot compete with imports on quality or price. We believe that current (domestic) production levels are over 100 million tonnes annualised off their mid-2008 peaks," Macquarie analysts said on Wednesday in a report.
Many of China's 150,000 mines produce low-grade ores and are small scale, with costs running close to the iron ore spot prices of $60-65 a tonne, and have been forced out of business.
Cheap freight costs .BADI, which have fallen 36 percent in just one month to a two-month low this week, have also made high-grade seaborne ores available at attractive costs enough to replace low-grade domestic ores.
Merrill Lynch analysts said on Wednesday China could import an additional 100 million tonnes of iron ore at current prices, as the levels make some 30 percent of China's high-cost producers economically unviable.
This means China is sucking in a quarter of the rest of the world's seaborne iron ore demand, possibly helping to halt the downward spiral in spot iron ore prices, which have fallen to around $60 a tonne from a record high around $200 early last year.
But the recovery may not come as early as some hope, analysts said.
"Steelmakers may make further production cuts, Chinese ports still face congestion and large quantities of iron ore imports are expected to arrive in China over the next few weeks, which could push spot prices further down," Morgan Stanley analysts said on Wednesday.
Iron ore stocks at China's major ports rose last week to 72.3 million tonnes.
Source: Reuters
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