By Kunal Bose
China, which has a share of over half the world steel production and at the same time accounts for nearly two-thirds of seaborne trade in iron ore by way of imports will unarguably have a major impact on price movements of the steelmaking ingredient in all situations. This feature of the trade will be well underlined by two recent developments: First, iron ore futures on China’s Dalian Commodity Exchange for the most traded September contract firmed up recently because of the country’s steel industry’s strong restocking demand fuelled by what is perceived as low inventories at ports. Leading commodity consultancy Mysteel headquartered in Shanghai says in a report that better margins on steel secured in July despite rises in production cost encouraged the industry to fund restocking of iron ore.
Then, more recently, the combination of two China related factors brought iron ore futures down: suspension of construction activity in and around Beijing to enable holding of military parade to a celebrate the end of the second World War in a clean environment. Simultaneously, the mills and the trade pressed the caution button awaiting key Chinese data that should give a clear idea of the likely future curtailment of steel production in the world’s largest user of all metals. The fact remains being such a major producer of steel and its own falling output of mostly low-grade ore make it imperative for the Chinese steel industry to maintain a fairly large portside inventory in all seasons, varying from 135m tonnes to 150m tonnes.
But the compulsion to maintain this kind of inventory – the volume is more than enough to meet iron ore requirements of the world’s third largest producer Japan which made 84m tonnes of crude steel in 2024 – has to be seen in the context of the mammoth sizes of foreign origin ore, mostly from Australia and Brazil that China routinely receives to feed its steel mills. The inventory is more than an insurance against any temporary disruption in supplies from Australia and Brazil.
In fact, supply disruptions, generally short-lived keep on happening due to storms, rains and floods. But the industry has also been a witness to the collapse of a tailings dam at a Vale owned mine in Brazil’s Brumadinho in January 2019 reportedly killing 270 people and causing serious damage to the environment. It took Vale a long time to repair the damage and bring production back to normal, besides paying hefty penalties. The accident and all its consequences alerted the global mining industry of the need for adequate investment and constant vigil to create accident-free environment at open and underground mines.
In the meantime, China as is its wont keeps on using its business guile to draw from or add to the inventory to command some influence on iron ore prices, which primarily moves on global seaborne trade balance and the trade’s perception of the short and medium-term world economic outlook. The ore market at this point remains in surplus, though the volume, according to trade officials, is down significantly because of an unexpected resilient demand of the raw material in the face of a fall in global steel production, thanks largely to the 3.1% year-on-year drop in Chinese crude steel output to 594.47m tonnes in the first seven months of this year.
Under combined pressure of high temperatures and heavy rains, the July production at 79.66m tonnes hit a seven-month low. The slide in production has also got to do with Beijing crackdown on steel overcapacity in a drive to bring the industry in alignment with local demand. Since as much as 98% of iron ore is used in steelmaking, developments in the Chinese steel industry will come in for close scrutiny of mining groups and trade officials. At this writing, SGX (Singapore Exchange) TSI iron ore (62% fe fines) CFR China Index Futures is $101.90 a tonne.
Interestingly, though the world has to contend with intense geopolitical risks and tariff uncertainties unleashed by President Donald Trump whose impact will spill into commodity trade, including steel and iron ore, the spread between high and low in iron ore prices this year remains muted at $14-15 a tonne compared with about $52 in 2024 and $32 in 2023. Iron ore trade has never been immune to buying of the ingredient by China and now the Beijing move to restructure the steel industry, which nurses considerable idle capacity and is the source of trade frictions because of unwelcome big steel exports is under watch of iron ore traders. Not only Chinese imports of iron ore are down but Kepler data shows imports by other major steelmaking countries such as Japan and South Korea and also Europe are also down in 2025 first half. During this period global seaborne imports were lower by 3% year-on-year or 25.09m tonnes to 818.01m tonnes.
Reuters suggests that Australia shipping a lower volume of 460.02m tonnes in the first half compared with 464.34m tonnes in the same period of 2024, thanks to the not uncommon weather-related disruptions in shipments by the world’s largest producer exporter of iron ore acted as a mitigating factor of “the price impact of the decline” on seaborne imports so far in the current year. According to S&P Global Market Intelligence, iron ore prices are likely to seek lower levels gradually, falling from an “estimated average of $97.20 a tonne in 2025 to a forecast low of $80 a tonne by 2029.” The anticipated surplus in global seaborne trade balance will be the principal reason for prices to fall. The agency says at the same time iron ore prices will recover to $95 a tonne by 2035 with the tightening of trade balance.
The single most influencing factor in iron ore trade balance, China recorded all-time high imports of 1.28bn tonnes in 2024, up 4.9% on 2023 imports of 1.18bn tonnes, a rise of 6.6% on the previous year. But henceforward, Chinese imports are likely to be marked by significant volatility, says S&P. “We anticipate a notable drop of 45.8m tonnes in 2025, reducing imports to 1,192m tonnes, marking the first decline since 2022, primarily driven by an expected reduction in the country’s steel production,” S&P forecasts.
Come 2029, Chinese imports are likely to be a record 1.254bn tonnes in the face of decline in domestic ore supply. Going further to 2035, ore imports are to slip to 1.194bn tonnes in sync with the “persistent decline in China’s steel output” and that will negatively impact the demand for the raw material. The agency expects steel production of the country to sink below 900m tonnes by 2035, compared with the record 1.065bn tonnes in 2020.
A common question is why does China with proven iron ore reserves of around 17bn tonnes and unproven reserves exceeding 200bn tonnes put reliance on imports to such a high degree? A part of the answer is provided by Mysteel Global, which says the average fe (iron) content in the Chinese ore is quite low at around 30%. Such ore requires beneficiation, producing a concentrate for use in blast furnace (BF), after its pelletisation.
Not only is China burdened with very low quality ore, but the cost of extracting ore at Chinese mines is so high that mines will break even or make small profits only when the raw material fetches at least $100 a tonne. S&P, therefore, says when ore prices fall “domestic miners will face pressure to close unprofitable mines, especially those located in regions where importing iron ore is easily accessible and competitive.” Compare this with the Australian BHP Billiton or the Brazilian Vale, which by way of optimising infrastructure and improvement in equipment and machinery performance and workforce rationalisation have been able to bring down production cost to $20-$21 a tonne. The Australian Fortescue has an iron ore cost guidance of $18.50 to $1975 a tonne.
Experts believe unfavourable production cost factor being highly pitted against China will be the reason for domestic production to fall in the long term. Moreover, the mounting pressure to decarbonise operations covering the entire steel value chain starting from raising ore from the earth will likely lead Beijing to decommission the unprofitable mines and also the ones stuck with unscientific mining practices. Whatever the size of Chinese domestic supply of iron ore in future years, the country has the comfort of knowing, the world will be experiencing significant seaborne iron ore trade surpluses beginning 2026, thanks to progressively rising supplies from Australia and Brazil, but perhaps more significantly the start of shipments from Guinea’s ambitious Simandou greenfield project by 2025 end. (IPA Service)
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