The Shipping News From China Is Good for Iron Miners, Mills

(Bloomberg) -- Record cargoes of iron ore coming into China and fewer boatloads of steel going out signal a boon for miners including BHP Billiton Ltd., Rio Tinto Group and Vale SA, as well as welcome news for rival metal producers like Europe's ArcelorMittal.

Purchases of ore rose 13 percent to 83.5 million metric tons in February, an all-time high for that month, with year-to-date shipments up 13 percent to 175 million tons, according to customs data Wednesday. Exports of steel products sank to 5.75 million tons in February, the lowest since the same month in 2014.

China is the world's top ore buyer and steel supplier, and the surge in ore imports and slump in overseas steel sales both point toward a recovery in its steel industry as the economy has stabilized, with local mills raising output while selling more production at home. With stronger local steel prices compared with rates in key export destinations, there's now more incentive for steel producers to sell domestically, according to Marex Spectron.

“For overseas miners, coming from the supply side, it does suggest the continued reliance of Chinese mills on seaborne ore, and as such might be some welcome news,” Tan Hui Heng, a Singapore-based analyst at Marex Spectron, said in an email. “As for overseas steel mills that are direct competitors with Chinese steel, it might offer some reprieve.”

Spot ore with 62 percent content fell 2.9 percent to $87.19 a dry ton on Wednesday, after hitting $94.86 on Feb. 21, the highest since 2014, according to Metal Bulletin Ltd. The raw material has more than doubled since bottoming in December 2015, and China's revival has benefited steel too.

JPMorgan's View

Still, with iron ore supplies forecast to expand further, analysts have highlighted the risks of a pullback. “Iron ore is going to finish closer to $60 a ton by the end of this year,” Sally Auld, chief economist and head of fixed-income and currency strategy for Australia at JPMorgan Chase & Co., told Bloomberg TV Wednesday, speaking before the release of the data.

China's purchases may continue to expand with more supply from Vale's $14 billion S11D mine. The first shipment of S11D ore, a blend that included material from other mines in Brazil, finished unloading in China on March 3. In Australia, billionaire Gina Rinehart's Roy Hill mine is also ramping up.

The record iron ore imports last month came as port stockpiles in the top user surged to unprecedented levels. The holdings increased 8.2 percent in February, the biggest gain in three years, and they now stand at a record 130 million tons, according to Shanghai Steelhome E-Commerce Co.

China accounts for about half of worldwide steel production, and the surge in product exports from 2014 to last year hammered global prices and triggered a rise in trade frictions as policy makers sought to protect local suppliers. At its height, the issue -- including how to deal with industry overcapacity -- was debated by Group of 20 leaders.

Monthly steel-product shipments peaked in September 2015 at more than 11 million tons, according to customs data. The February figure compares with 7.4 million tons in January this year, and 8.1 million tons in February 2016.

ArcelorMittal, the world's biggest steelmaker, was among suppliers outside China that were buffeted by the nation's exports, as well as the drop in prices the intensified competition brought. In 2015, the company took aim at the very challenging market, citing “very low export prices out of China.”

--With assistance from Matthew Burgess and Haidi Lun

To contact the reporter on this story: Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net.

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Jake Lloyd-Smith