(The opinions expressed here are those of the author, a columnist for Reuters.)
* GRAPHIC: China iron ore imports vs. SGX price: tmsnrt.rs/2NcZGMU
By Clyde Russell
LONDON, Oct 25 (Reuters) - China’s imports of iron ore show no sign of slowing in October, and may even come close to a record high, indicating that concerns over lower steel output over winter may be misplaced.
Vessel-tracking and port data compiled by Refinitiv show that imports of the ore used to make steel are on track to exceed 100 million tonnes in October.
The data is filtered to show only cargoes already discharged, or in the process of discharging, or underway and expected to unload this month.
If iron ore imports do exceed 100 million tonnes, it would mark only the third time this has occurred, after September 2017 and January 2018.
Imports for September were 99.4 million tonnes, a 20-month high, official customs data showed. The vessel-tracking and official figures don’t align exactly, given differences in when cargoes are assessed as having been offloaded and cleared customs.
The recent trend in China’s iron ore imports has been of strong gains, partly making up for the loss of supply earlier this year in the wake of a fatal dam collapse in Brazil and a cyclone in Australia, which combined to crimp shipments from the world’s two biggest exporters.
However, the ongoing appetite for iron ore also seems somewhat at odds with the drop in steel output in September to the lowest in six months.
Steel production was 82.77 million tonnes last month, down 5.4% from 87.25 million tonnes in August, the lowest level since March, data from the National Bureau of Statistics showed.
But there are reasons that September was more likely an outlier for steel, given production curbs ahead of the week-long national day holidays in early October.
For the first nine months of the year, China churned out 747.82 million tonnes of steel, up 8.4% from the same period last year, the official data showed.
While steel mills have seen their profit margins compress this year, demand appears to be holding up, especially in housing construction.
This means steel mills still have the incentive to produce and are likely to be keen to ensure that iron ore inventories are sufficient.
The winter pollution curbs in China may also not be severe, allowing mills to continue operating at relatively high rates.
In an action plan for October 2019 to March 2020, China said 28 smog-prone northern cities, including the capital Beijing, would have to curb emissions of lung-damaging small particles known as PM2.5 by an average of 4% from a year ago.
However, the targeted decrease is 1.5 percentage points lower than an earlier draft, and would not be enough to reverse a 6.5% surge throughout the Beijing-Tianjin-Hebei region over the same period last year.
This means that the winter pollution curbs in some of China’s major steel-producing regions may not result in much production being cut, an expectation that is reflected in robust iron ore imports, and in the pricing of the raw material.
In recent months high-grade iron ore has moved closer in price to the benchmark 62% grade, a signal that steel mills are unwilling to pay a premium for better quality ore.
This generally means the mills are seeking to lower costs by using lower quality iron ore and are therefore less concerned about possible pollution curbs.
Benchmark 62% iron ore MT-IO-QIN62=ARG, as assessed by commodity price reporting agency Argus, ended at $86.75 a tonne on Thursday, a discount of 7.2% to the 65% grade, which is less than half of the 16% discount that prevailed at the start of the year.
Overall, the picture that emerges is one of steel mills seeking to minimise costs as margins weaken, but still run at high capacity rates as winter pollution curbs do not appear overly restrictive and steel demand remains solid.
In this situation it is likely that iron ore imports will remain resilient, especially from Australia, given the world’s top exporter provides mainly benchmark 62% ore and lower grades, and less of the more expensive higher-grade material. (Editing by Jason Neely)