China steel output to peak in 2018, iron ore imports to fall, Australia says

China steel output to peak in 2018, iron ore imports to fall, Australia says

China’s steel production was expected to peak in 2018, with the country’s iron ore imports set to decrease over the coming years, according to the Australian government’s Resources And Energy Quarterly report published earlier this week.

Estimates for the East Asian country’s steel output in 2018 were around 886 million tonnes, up by 4.2% year-on-year, the report said.

Steel consumption was expected to show a 2.8% year-on-year rise to 810 million tonnes, it added.

Last month, the secretary general of the China Iron & Steel Association (CISA) said that the country’s steel production has entered a “stable peaking stage.”

“This peak stage will not pass quickly because steel demand from China will continue to be supported, he added.

The Australian government expects China’s steel consumption to decline by 1.9% in 2019 and by a further 2.3% to 776 million tonnes in 2020, largely driven by slower urban residential construction and infrastructure investment.

China’s steel production is expected to decline over 2017-2020, driven by a suite of government policies, including stricter environmental regulations, supply-side reforms reducing some loss-making production capacity, and reducing debt, it added.

On the iron ore front, the Australian government has forecast Chin’s total import volumes for 2018 around 1.06 billion tonnes, down by 1.5% year-on-year.

This expected drop in import volumes took into account that steelmakers in China were making adjustments and using more scrap, pellets and high-grade iron ore, displacing lower-grade iron ores in the steel making process.

As a result, iron ore import volumes into the world’s biggest net importer would show a gradual decline to 1.04 billion tonnes in 2019, down by 1.5% year-on-year and with a further drop of 2.1% expected in 2020 to around 1.02 billion tonnes, according to the report.

The Chinese government also expected demand for higher grade iron ore to be sustained on Chinese steelmakers’ increasing preference for high-grade ores, to maximize production and comply with more stringent environmental policies.

“Higher prices for premium ores diminished profit margins for Chinese steelmakers in the three months to August,” the report said. “Nonetheless, profits remain high and steelmakers continue to prefer high-grade ores (largely supplied by Brazil) as well as greater use of scrap to maximize steel production.”

Fast markets’ 62% Fe Iron Ore index was $69.24 per tonne CFR China on October 5, while the 65% Fe Iron Ore Index was $96.40 per tonne CFR China.

Both indices were unchanged from October 3