Thursday, May 07, 2009
Thursday, 07 May 2009
Chinese iron ore imports hit a record high for a third successive month in April, raising the stakes in a pricing battle between China's steel sector and the world's top miners. China's iron ore imports rose to a new high of 53.5 million tonnes in April, up 24.2 percent from a year earlier, the Ministry of Transport said late on Tuesday in a report posted on its website, citing preliminary statistics.
That means China imported more iron ore in the last three months than in the preceding four.
An official figure will be issued early next week by the General Administration of Customs. Last month the ministry gave a preliminary figure that turned out to be more than 1 million tonnes too low.
The record imports will be seized on as leverage by both sides in annual benchmark iron ore price talks between China's top mill, Baosteel and the top miners, BHP Billiton, Rio Tinto and Vale.
Chinese steelmakers have been pushing for a 40 percent price cut in this year's talks and an industry group executive told Reuters on Tuesday they should be able to get a price below the spot market, meaning a cut of 30 percent or more.
But a slew of data showing solid domestic steel production recently is giving miners arguments to limit any price cuts.
China may also be increasingly reliant on imports because it is producing less magnetite-type ore, which costs more than the spot market ore widely available from importers, said James Wilson, a mining analyst for DJ Carmichael & Co in Perth.
"This could make it difficult for the mills to win that 40 percent or so price cut they've been pushing for this year."
Sam Walsh, the chief executive of Rio Tinto's iron ore division, has warned that the company may walk away from the negotiations if no agreement is reached by the end of June, according to some media reports in Australia.
IMPORTS TO KEEP FLOWING
Since imports are cheap, they are likely to keep flowing, said Jiang Qiu, analyst at Guotai & Junan Securities.
"The momentum of high imports could be sustained for the next few months because of the low price of imported ore, even though prices of domestically-produced iron ore have dropped and port inventories have stayed at a high level," Jiang said.
Record imports may show healthy steel demand or risk flooding the market if the steel revival fails to come up to expectations.
China's Iron & Steel Association has warned of disaster for the industry if mills do not cut back on production, which is running faster than last year despite a target to cut by 8 percent to 460 million tonnes this year.
China's exports of steel products were down 60 percent on the year in March but some, including Lakshmi Mittal, chairman of top world steelmaker ArcelorMittal, are confident China will fill the hole with domestic demand, thanks to the government loosening credit and increasing spending.
"We believe that they will have almost the same demand like last year, in spite of the fact that their exported products made of steel will go down. Which means that the stimulus package will grow their domestic demand, which will offset their lowering of exports," he told an analysts' call last week.
"And that means their domestic market will remain strong."
But China still has to soak up more than 70 million tonnes of ore sitting at its ports. Zhang Changan, senior business consultant with World Steel Dynamics, estimates there is a further 20 million tonnes at steel mills.
"Some single steel mills in Tangshan that I have visited have between 700,000 and 800,000 tonnes in inventories. Half of this level would be reasonable," he said at a conference last week.