“It’s like a bad virus,” Lourenco Goncalves, chief executive officer of the largest U.S. iron ore producer, said in a phone interview from the company’s headquarters in Cleveland, Ohio. “Australia continues to give iron ore to China almost for free, allowing them to produce more than they need.”
Shipments from the biggest producer are headed for a record this year as slowing local demand prompts mills to seek overseas buyers, driving down prices and spurring trade tensions from the U.S. to India. At the same time, the largest iron ore miners including Australia’s Rio Tinto Group are boosting output to expand sales. China’s steel shipments were called extraordinary by Credit Suisse Group AG, which said last month they were now in line with total output from Japan, the number-two producer.
“What China is exporting alone is bigger than the second-biggest producer of steel in the world: it is crazy,” Goncalves said on Wednesday. “With the massive sales of iron ore to China -- enabling China to produce a lot more than China actually needs for consumption -- there’s a glut of exports.”
Shipments of steel from China surged 9.5 percent to 9.73 million tons in July, according to customs data. In the first seven months, exports rose 27 percent to 62.13 million tons, the highest ever for the period, data compiled by Bloomberg show.
Macquarie’s Forecast
Exports of steel from China are forecast to expand 21 percent to 111 million tons in 2015, according to a projection from Colin Hamilton, head of commodities research at Macquarie Group. That compares with 53 million tons in 2013.
Cliffs also owns iron ore mines in Australia that Goncalves is seeking to sell. He took the helm in 2014 after an activist-investor revolt, promising to end Cliffs’ vulnerability to the oversupplied seaborne market. Cliffs’ stock fell 80 percent in the past 12 months as iron and steel prices tumbled.
Producers including Rio and BHP Billiton Ltd. have defended their policy of expanding output into an oversupplied market. Rio’s Sam Walsh said in February if it cut output, forfeited supply would be made up by rivals with higher costs, and that wouldn’t be in his shareholders’ interests. Alan Chirgwin, iron ore marketing vice president at BHP, said in May that miner’s strategy was rational and it wouldn’t countenance cutting back.
Iron ore with 62 percent content delivered to Qingdao fell 0.9 percent to $56.41 a dry ton on Wednesday, according to Metal Bulletin Ltd. While prices gained 27 percent since bottoming at $44.59 on July 8, a record in data going back to May 2009, they’re still down 21 percent this year.
“Here in U.S., because we’re the most open market in the entire world, we receive steel from virtually everywhere,” said Goncalves. “We don’t mind free trade, but we want fair trade. We can’t allow subsidized, dumped, illegally traded steel.”
