News Room - Steel Industry

Posted on 05 Jun 2009

China's iron ore stockpile will reach 120m tonnes

CHINA'S swelling iron ore stockpile is expected to soar as high as 120 million tonnes this month, with as much as 60 million tonnes entering the country's ports in May alone and more ships already lining up in Tianjin harbour in the country's north.

 

Major iron ore producers including BHP Billiton and Rio Tinto are believed to own up to 30 per cent of the stash, with the rest held by existing contracts and local traders.

 

The government-controlled China Iron and Steel Association has completed a detailed investigation into the stockpile, which triggered alarm bells with China's leaders earlier this year as volumes started to quickly mount but demand for steel stayed flat.

 

The Ministry of Industry and Information Technology last month instituted measures to try to staunch the flow of the mineral and trim the stockpile by putting restrictions on bank loans to steelmills and forcing them to cut their spare iron ore piles.

 

But the ministry's efforts have so far failed. "This is company behaviour, the Government can't do much to it," Umetal analyst Hu Kai said.

 

China needs only about 30 million tonnes each month to feed its steel mills and demand for their production is expected to be flat or only slightly increase over the next 12 months as the nation's recovery proceeds slowly.

 

About 30 per cent of China's steelmaking capacity has been closed down due to the global recession, but a number of the country's larger producers are investing in major new technologically advanced plants.

 

A record 57 million tonnes of iron ore was imported in April, beating March's 52 million tonnes. Local analysts expect May figures will be between 52-60 million tonnes.

 

"This rise is much sharper than last year when the steel industry was at its best," Custeel.com. iron ore analyst Yao Fu said. "But even though there is big stock, we do not expect a sharp drop in the price of iron ore."

 

Brazil's Vale is understood to own the largest amount of mining companies' stockpiled iron ore, followed by BHP Billiton and Rio Tinto. About 35-40 per cent of the stockpile is owned by speculative Chinese traders, who have been buying at lower spot prices in anticipation of a higher contract price being set.

 

"I can't believe the record levels of imports -- it is making up for the fall off in domestic production of iron ore, but it also implies at the moment that steel production is going to be around 520-540 million tonnes versus the Chinese Government's target of 460 million tonnes," Royal Bank of Scotland resources analyst Waren Edey said.

 

Mr Yao said he expected the contract price between Chinese steelmills and iron ore producers such as BHP Billiton and Rio Tinto to be set at about 37 per cent below last year's level.

 

This is short of the 40 per cent plus that CISA and Boasteel have been pushing for.

 

Rio Tinto has agreed price reduction of 33 per cent with Japanese and South Korean producers, who do not buy as much iron ore as China.

 

Unlike stockpiles that are being made of more expensive commodities such a copper, iron ore is not seen as being warehoused for strategic purposed. Mr Yao also said that the effect of the closure of a raft of small Chinese iron ore mines had been overestimated.

 

"There are less mines but overall the sector is producing the same amount," Mr Yao said. Last year China produced more than 100 million tonnes of iron ore but of a much lower grade than that coming from the major global producers in Australia and Brazil.