China is on course to import a record amount of iron ore as its mills turn to the seaborne market to secure supplies of the steel-making ingredient.
Deliveries to China hit 94.7m tonnes in June, up from 91.5m tonnes in May, according to customs data released on Thursday.
The figures also showed imports for the first six months of the year had risen more than 9 per cent to 539m tonnes. If that level of buying is sustained in the second half of the year then China’s imports of iron ore will exceed last year’s record of 1.024bn tonnes.
China’s steel mills have cranked up production this year to cash in on an unexpected rise in prices.
Rebar – the most traded steel construction contract – has risen 37 per cent this year and Thursday hit its highest level in three-and-a-half years. Demand has been propped up by infrastructure spending and Beijing’s determination to rein in excess capacity in its vast steel industry.
Analysts said domestic iron ore was falling out of favour in key steel-producing regions in China because of efforts by the government to clamp down on pollution caused by sintering plants. In these plants, coarse, lower grade iron ore is combined with other materials at high temperatures to make a product that can be fed directly into blast furnaces. However, the process is major source of pollution and sulphur dioxide.
“It’s increasingly about security of supply,” said Morgan Stanley analyst Tom Price, explaining that steel mills on the eastern seaboard and in the Hebei province felt they could not rely on local suppliers.
“Two or three ago years ago they felt they could lock up a lot of their tonnes locally, and it would be delivered to them. But over the past of couple of winters, particularly this last one, lots of third party sintering plants were closed down – a big problem, since they’re essential in processing local ores,” he said.
Australian ore with 62 per cent content – the benchmark for the Asian market – rose 40 cents to $65.70 a share on Thursday. It has traded in a wide range this year, hitting $95 a tonne in February and $53 last month as sentiment has ebbed and flowed.
Source: www.ft.com
