Muzhu Mining Ltd. (CSE: MUZU)
Creating lasting wealth by developing gold and silver properties with near-term mining potential
China’s crude oil imports increased by 11 per cent in 2023 from 11.28 million barrels per day in 2022; coal imports increased by 61.8 per cent from the previous year to 474.42 million tonnes. Iron ore imports increased by 6.6 per cent from 2022. Total iron ore imports reached a record 1.18 billion tonnes amid deflation in the Chinese economy.
According to a report by Reuters analysts, the main reason for the increase in coal imports was that hydroelectric power generation fell short of expected output for 2023, dropping 7.1 per cent in less than a year. In addition, seaborne price of coal has fallen sharply in the last year, making coal imports more cost-effective than domestic Chinese coal. Meanwhile, China plans to generate electricity from greener renewable sources such as solar power by 2024. As a result, demand for coal is likely to fall sharply this year.
The growth in iron ore imports comes at the same time as the weakness in China’s property market is evident for all to see, with the country’s gross domestic product (GDP) growth falling back to around 5.4 per cent. This is despite the fact that steel production is expected to reach a record high in 2023, benefiting from areas such as car manufacturing, project building and exports of steel products. However, analysts point out that the scope for growth may be limited in 2024.
Also in 2024, China may switch to using more low-grade iron ore, sources said. Over the past two to three years, China’s domestic steel mills have been changing the way they use and source iron ore. Analysts say Chinese steel producers are likely to keep iron ore inventories low in response to market uncertainty as the country struggles to recover its economy. In fact, most steelmakers are choosing to continue buying small amounts of iron ore from the local Chinese market, rather than relying on shipping large quantities of iron ore from overseas.
Iron ore giant Rio Tinto has predicted that production of the company’s low-grade ore will actually increase this year. At the same time, China may also import low-grade ore from India, particularly from provinces such as Goa.
The People’s Bank of China trimmed the reserve requirement by 50-basis points on 24 January, aimed at boosting lending to fund property and infrastructure development. The central bank also released policies to improve commercial property lending. While it remains to be seen whether these measures will actually translate into an increase in demand and construction activity in the world’s second-largest economy, the optimism generated is likely to lead to an increase in demand for iron ore.
China’s steel and iron ore inventories tend to grow strongly in the first two months of a new year, as mills stock up and boost production ahead of the peak construction season.
