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Mixed signals from iron ore

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2024-06-26

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Buried in the production data from China’s National Bureau of Statistics for May were a couple of data points that tell different stories about the health of China’s huge steel industry, the most important business in that country so far as Australia is concerned.

The good news was that iron ore stocks held at China’s 45 major ports eased lower for the second week in a row, according to the commodity data website Mysteel.

As of June 20, imported iron ore inventories at these 45 ports slipped by 93,500 tonnes, or 0.1% week-on-week, to reach 148.8 million tonnes. That was a much smaller fall than the 220,000 tonnes the week before.

But it was a sign of steadying demand for iron ore. Australian exports through Port Hedland jumped to a near two-year high of 45.34 million tonnes in May, second only to June last year when 45.57 million tonnes were shipped. Port Hedland is mostly used by BHP, Fortescue, Roy Hill, and Mineral Resources.

China’s iron ore production rose to 88.5 million tonnes in May, up slightly from April (which saw a slide of 10.4% from March). For the five months from January to the end of May, production was up a solid 13.4% to 457.35 million tonnes.

China’s coal production picked up in May from April’s slide. The NBS data showed China produced 383.85 million tonnes of coal in May, up from 371.67 million tonnes in April, the lowest level since October 2022. This helps explain why imports are still higher than a year ago.

However, there’s a shortfall of coking coal, and imports in the first five months of this year were up 27%.

The big negative was the data on the production of steel rebar—reinforcing steel used in housing and construction (infrastructure and used to add strength to concrete).

It’s an indicator of the health of the property, housing, and construction sectors, and the NBS figures showed a 12.6% slump in output in January-June to 84 million tonnes. In May alone, rebar output fell nearly 9% from May 2023 to 18 million tonnes (though May was up 10.1% from depressed April).

Rebar capacity utilisation in the first months of this year was 7.6 percentage points lower than a year earlier. That’s the best sign of the depression in the property sector.

Perhaps that’s why Singapore iron ore prices hit a near three-month low on Monday at just over $US102 a tonne, down more than 2% from Friday and more than 16% under the most recent high of just over $US122 a tonne on May 22. They were around $US1 a tonne higher on Tuesday at just over $US103 a tonne, still at those April lows.

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