Morning Brief: China's iron ore imports dip in 2021 on production cuts

China's total iron ore imports in 2021 dipped slightly, by 3.4% 1.13 billion tonnes (bnt) against 1.17 bnt seen in 2020, as per data maintained with SteelMint.

The slight drop was on account of China's strict crude steel production curbs initiated last year in a bid to achieve its long-term carbon reduction goals.

China's steel scenario

China's total crude steel output in 2021 was at 1.03 billion tonnes (bnt), matching the government's strict target of restricting the output to 2020 levels of 1.06 bnt or below.

In this, the share of the blast furnace route of steelmaking is more than 80%. In 2018, the share of the BF route was at around 830 million tonnes (mnt) as per worldsteel data, with the share of electric furnaces being 96 mnt. Usually, 1.6 tonne of iron ore is required to make 1 tonne of crude steel.

It may be recalled that China is looking at a carbon emissions peaking timeline of 2030, followed by carbon neutrality by 2060. Consequent to this, China is eyeing an increase in the share of EAF steelmaking

Fines' share highest

The data reveals that the share of fines in 2021 was at 798 mnt, lumps at 184 mnt, followed by concentrate at 121 mnt with pellets bringing up the rear at a mere 22 mnt.

The share of fines is logically the highest since more than 75% of ore mined globally happens in the form of fines, which are eventually made into either pellets or sinter after converting into concentrate. On the other hand, concentrated iron ore can be directly converted into pellets.

China is almost 80% dependent on imported iron ore for its steel-making since its own reserves yield low grade. As per a report in NS Energy, China's own iron ore reserves in 2019 were pegged at 20 bnt. However, its domestic reserves are of rather low grade, with an Fe content of around 30.62%. As a result, it is more viable to import rather than beneficiate that ore for use in its steel industry.

Globally, iron ore resources are estimated at over 800 bnt of crude ore, containing more than 230 bnt of iron, as per worldsteel.

Demand for lump, pellets

Pollution counter-measures were the catalyst for Chinese blast furnace manufacturers to rapidly increase imports of lump ore. Due to restrictions on the operation of sintering machines that use powdered ore, the use of lump ore increased sharply.

However, record high metallurgical coal and coke prices towards the latter half of CY'21 and the impact on steel mill margins drove down seaborne lump premiums from Jul'21 onwards. Mills reportedly decreased the share of lump in their feedstock blends.

Prices came under pressure in H2CY'21 due to output curbs and increasing supplies of lump ore after BHP started its South Flank operations in contrast to constrained supplies in H1.

China's pellets imports witnessed a sharp decline of 50% y-o-y during CY'21 to 22.52 mnt against 45.04 mnt in the same period last year. Pellets shipments into China declined y-o-y on the considerably higher base of 2020 as well as the bleak steel production scenario in China that unfolded since the beginning of H2CY'21.

Domestic power shortage in China due to reduced coal supplies hampered production and demand for raw materials. In addition, China's domestic run of mine (ROM) iron ore production increased to 958.99 mnt in CY'21 against 867.45 mnt in CY'20.

Australia highest exporter

Data reveals that China imported the highest volume of iron ore from Australia in 2021, at 694 mnt, followed by Brazil at 238 mnt. These two countries are the largest and second largest exporters of iron ore respectively. Australia exported 840 mnt of iron ore in 2021, with China being its leading importer with 82% share. Brazil's exports last year were at almost 360 mnt, with China's share at around 68%.

Outlook

China, in its 14th Five-Year Plan (2021-2025) unveiled last year, said that it is focusing on, amongst other aspects, reaching a scrap ratio of 30%, and developing a scrap index and futures. This would mean a pronounced emphasis on the EAF route - which uses ferrous scrap as feed, and this trend can lead to lesser consumption of iron ore in the longer term.