China's iron ore supply surplus to continue in H2: Mysteel

China's iron ore market is set to remain oversupplied during the current July-December half, as supply will enjoy upward momentum from more arrivals of imported ore and stronger domestic production, while demand is likely to shrink due to restricted steel production, Mysteel predicts in its latest market outlook for the commodity.

Ore carrier arrivals to rise further in H2

The iron ore shipments from miners worldwide to all destinations under Mysteel's tracking totalled 785.7 million tonnes (mnt) during this year's first half, up by 39.3 mnt or 5.3% from H1 2023. Among them, those from Australia dropped due to unfavourable weather conditions and mining accidents, while Brazil and some non-mainstream ore suppliers such as Ukraine and South Africa ramped up their shipments, contributing to the overall growth.

As for H2, global iron ore shipments will expand by 60.2 mnt from H1 to reach 845.9 mnt, Mysteel forecasts in the report, citing positive seasonal factors and more overseas iron ore projects scheduled to be brought onstream.

This means that China, the world's top iron ore importer, will also receive more ore cargoes this half, the report noted. Mysteel estimates that ore arrivals at China's 45 major ports will total 592.8 mnt between now and end-December, higher by 2.5% when compared with the 578.6 mnt cleared through China Customs in H1.

Meanwhile, domestic iron ore concentrate output is projected to increase by some 2 mnt in H2 as against H1, given that operations on many halted domestic mines are planned to resume and new projects are scheduled to commence production, the report also suggests.

Subdued hot metal output in H2 to weigh on iron ore demand

Over January-June, hot metal output of the 247 Chinese steel mills regularly monitored by Mysteel amounted to 415.3 mnt, down by 14.5 mnt or 3.4% on year. The root cause was the lukewarm demand for steel among end-users as China's property market still struggled, despite some government stimulus policies introduced during the past half, the report noted.

Although hot metal output is expected to see a small uptick during this half compared with that in H1, an on-year decline is still a possibility, the report argued. In fact, domestic pig iron output throughout 2024 could be 20-30 mnt lower than last year, the report forecasts.

Apart from the weak housing market, other negative factors leading to constrained steel production among Chinese mills include possible province-wise measures to control crude steel output, slow progress on infrastructure projects and levies imposed on China's new energy vehicles by some Western countries, the report explains.

Chinese ore prices face downside risks from swelling iron ore port stocks

The combination of growing supplies and shrinking demand in H1 caused iron ore stocks at Chinese ports to mount. As of 27 June, iron ore inventories at China's 45 major ports under Mysteel's tracking stood at 149.3 mnt, up by 22% from the 122.4 mnt sitting wharf side at the beginning of the year.

Meanwhile, Chinese prices of imported iron ore tracked downward overall during this year's first six months, with a short-lived rebound seen in April-June after some stimulus policies introduced to help revive the housing market lifted market sentiment.

As of 28 June, SEADEX 62% Australian fines had fallen by $36.4/dmt from 2 January to $106.6/dmt CFR Qingdao, while Mysteel PORTDEX 62% Australian nines in Qingdao was also lower at yuan 828/wmt ($113.8/wmt) FOT and including the 13% VAT after losing yuan 232/wmt from 2 January.

Anticipating that the supply glut will persist during this half, Mysteel sees iron ore port stocks at the sampled ports rising further to 169.1 mnt by end-December, registering an increase of 13.3% from end-June.

The elevated iron ore port stocks mean that Chinese iron ore prices will continue to encounter downside pressure during the current half, but the traditional peak season for steel demand over September-October could also produce a rebound in ore prices, the report added.

Note: This article has been exchanged under the article exchange agreement between BigMint and Mysteel.