Clyde Russell

After a stellar start to the year, China’s two leading steel and iron ore sectors are slowly losing momentum, raising concerns about the strength of the recovery of the world’s second-largest economy.

Moreover, while prices across the steel complex have fallen in recent trading sessions, China’s iron ore imports appeared to be declining after the healthy figures they achieved in January 2023.

It should be noted that China accounts for more than half of the world’s steel production and buys about 70% of the world’s seaborne iron ore, which is one of the two primary raw materials used in the steel industry, along with coking coal.

The spot price of benchmark iron ore 62% for North China delivery was $118.8 a tonne on April 10, 2023, according to commodity price reporting agency Argus, the lowest since January 9, 2023.

The 10.9% fall in the iron ore price since its peak of $133.40 a tonne on March 15 comes amid market optimism about future demand for steel as Beijing moved to stimulate the economy after ending its coronavirus-related strict policy that stunted growth last year.

In addition, China is also the largest producer and consumer of coal in the world. Coke prices were under pressure as the contract’s value traded in Singapore decreased by about 24%, which resulted in commodity prices drop from Australia, the largest exporter of fuel in the world, to $ 289.9 per tonne, at the lowest price level since December 30 of last year, after peaking last February at $381 per tonne.

Domestic steel prices in China were not spared from the negative repercussions, as rebar futures contracts in Shanghai closed at 3,946 Yuan ($574) per tonne on April 10, the weakest price since December 26, and down by 8.8% from the peak this year at 4,328 Yuan on March 14.

Not only are prices declining, but also there are indications that iron ore volumes and steel production are also weakening slightly, as Refinitiv estimated China’s iron ore imports at 94.17 million tons in March, which means 3.04 million tons per day. Thus, these figures were less than 3.29 million tonnes per day for the first two months of this year, during which the rate was 7.3% higher compared to the same period in 2022, according to official customs data.

This April, China’s iron ore imports may also be heading for a weak result, as Refinitiv reported an expected 82.34 million tonnes. However, this figure is likely to rise in the coming weeks, with more shipments expected to be delivered by the end of the month.

Meanwhile, during the last period, steel production in China declined to low levels, as the consulting company “My Steel” reported a decrease in the production quantities of structural steel materials, including rebar steel and wire rods, by 1.04% weekly to 4.23 million tonnes for the period ending April 6. It added that during the same period, the demand for steel products witnessed an apparent decline of 6.7% weekly to 4.36 million tonnes.

Lower prices, the seaborne iron ore imports volume, and steel production indicate an expected moderation in the demand outlook in China. Perhaps the initial expectations after the dramatic end to the Corona restrictions late last year were very optimistic, and what is happening now is just a reassessment. Indeed, these indicators do not mean entering a stage of deterioration or weakness but merely replacing a state of high optimism with a more moderate reality, which is still positive.

However, government messaging from Beijing is a crucial factor that should always be considered and monitored amid reports that China is considering an official target to cut steel production by 2.5% in 2023 from 1.018 billion tonnes last year.

If this is confirmed, it officially means the end of the strong start of Chinese steel production during January and February of this year, when production increased by 5.6% compared to the same period in 2022. Therefore, the figures will be moderate until the end of 2023. Nevertheless, expectations for iron ore and coke indicate that the demand for the two commodities will remain strong in China but within limits and may not rise much during 2023.