(Repeats column published earlier, no change to text)
Aug 31 - China is set to record another month of strong iron
ore imports in August, helping to justify the ongoing resilience
in the price of the main ingredient in steel.
What's harder to quantify is exactly what's happening to all
the steel being produced.
China's seaborne imports of iron ore were 92.9 million
tonnes, with one day left to assess cargo arrivals, according to
Refinitiv vessel-tracking and port data.
Even if this figure does increase somewhat, it's unlikely to
reach the record 112.65 million tonnes reported by customs for
July, however, it will be in line with the average monthly
imports of 94.23 million tonnes for the first seven months of
The strength in China's iron ore imports, which rose 11.8%
in the first seven months of 2020 compared to the same period a
year earlier, has been one of the bright spots in the economic
recovery from the lockdowns imposed to curb the spread of the
Steel output has also been robust, hitting a monthly record
of 93.36 million tonnes in July, according to official figures.
On a per day basis, July's output of 3.01 million tonnes was
just below the record 3.05 million achieved in June.
The strong demand for iron ore has seen the spot price for
benchmark 62% iron ore delivered to north China
<MT-IO-QIN62=ARG>, as assessed by commodity price reporting
agency Argus, surge 62% from its low so far this year of $79.60
a tonne on March 23 to its recent 6 1/2-year high of $128.60.
The price has since slipped slightly to end at $123.45 a
tonne on Aug. 28, but remains high by the standards of the
previous five years.
The price of benchmark steel rebar futures in Shanghai
have also been robust, but not in the league of iron
The contract ended at 3,717 yuan ($541.84) a tonne on Aug.
28, up 22% from the closing low so far this year of 3,059 yuan
on Feb. 3.
The outperformance of iron ore over steel has led to a
contraction of margins in the industry, as seen by the 37% slump
in profits in the first six months of 2020 announced by top
steel marker Baoshan Iron and Steel.
But this has yet to result in steel mills curbing output,
even though there are signs that inventories are starting to
Stocks of rebar <SH-TOT-RBARINV>, as measured by consultants
SteelHome, rose to 7.94 million tonnes in the week ended Aug.
28, up from the low for the year so far of 7.1 million tonnes
for the week to June 24.
However, given the cyclical nature of China's steel
inventories, which tend to rise sharply at the end of the year
and then draw down as construction ramps up as winter ends, it's
more important to compare inventory levels to where they were at
the same point in prior years.
At the end of August 2019, inventories were 5.81 million
tonnes, at end August 2018 they were 4.15 million and at the
same time in 2017 they were 3.88 million.
This suggests that rebar inventories are elevated for the
time of year, and that's just the visible inventories that can
One of the unknowns in China is how much steel is sitting in
stockpiles that aren't being assessed, the so-called dark
warehouses where traders can store metal that they are financing
in the expectation of being able to sell it at a higher price
It's also challenging to work out exactly how much steel is
being consumed in China, although the industry associations
forecast is for around 890 million tonnes of domestic demand for
Given that output is on track to exceed 1 billion tonnes for
the first time, this may leave quite a gap between output and
demand for the year as a whole.
Exports are unlikely to close that gap much, with steel
product exports dropping 17.6% to 32.9 million tonnes in the
first seven months of 2020 compared to the same period a year
It appears that the iron ore and steel sectors are placing a
rather large bet that Beijing's efforts to stimulate the economy
post-coronavirus will result in significant boosts to the main
drivers of steel consumption, namely construction and
There is some evidence of this, with property investment
picking up, growing 3.4% in the January to July period, compared
with the same period last year. This may sound modest, but it's
worth noting that in the January to March period, property
investment was down 7.7% year-on-year, as China enforced
However, fixed-asset investment was down 1.6% in the first
seven months of the year, although there was growth in steel
intensive sectors like rail, which rose 5.7%.
But the question remains as to whether China can absorb all
the steel it is producing, especially given that the rest of the
world is unlikely to be much help with buying steel products, or
manufactured goods made with steel.
(Editing by Stephen Coates)