STEEL DECLINE?
There has also been speculation that China will decide to
implement a policy to cut steel output by 2.5% in 2023 from
2022's total of just over 1 billion tonnes.
If such a policy is adopted, it implies that any strength in
the first half of 2023, as is currently being seen, will have to
be offset by lower output in the second half.
China's domestic steel demand may decline to 910 million
tonnes in 2023 from 920 million in 2022, Niki Wang, managing
editor for iron ore at S&P Global Commodity Insights, told the
Global Iron Ore and Steel Forecast Conference in Perth on
Thursday.
While a 10 million tonne drop in China's consumption is
relatively small, it still makes it harder to build an overall
bullish case for iron ore demand and prices for 2023 as a whole.
The risk is that iron ore demand is being front-loaded into
the first half of the year, and potentially will decline in the
second, with the concomitant risk prices will also come under
pressure.
The opinions expressed here are those of the author, a columnist
for Reuters.
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GRAPHIC-CHina iron ore imports vs spot price: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Editing by Jan Harvey)
(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
PERTH, March 23 (Reuters) - The risks to the bullish
drivers of the spot iron ore price are rising as the market
starts to question the nature and strength of China's economic
recovery, while the chances of a global economic hard landing
mount.
Benchmark 62% iron ore for delivery to north China , as assessed by commodity price reporting agency
Argus, ended at $121.60 a tonne on Wednesday, a two-month low.
The price has dropped 8.8% since hitting $133.40 a tonne on
March 15, which was the highest since June last year.
However, despite the recent moderation in the spot price,
it's worth noting it's still 54% higher than the 2022 low of $79
a tonne, hit in October.
Since that low the price has been driven higher mainly by
optimism over demand from China, which buys about 70% of global
seaborne volumes of the steel raw material.
The rally accelerated after Beijing abandoned its strict
zero-COVID policy towards the end of last year, as optimism
mounted over an economic rebound amid stimulus spending and
pent-up demand in the world's second-largest economy.
The iron ore price rally was matched by rising imports by
China, with official data showing imports of 194.2 million
tonnes in the first two months of the year, up 7.3% from the
same period a year earlier.
It's likely that the pace of imports has been maintained in
March, with Refinitiv estimating arrivals of around 103 million
tonnes, while Kpler forecasts 102.7 million.
On a daily basis this equates to about 3.32 million tonnes
in March, which would be an acceleration from 3.29 million in
the first two months.
China publishes combined January and February data to smooth
out distortions caused by the Lunar New Year holiday, which fell
in January this year but was in February in 2022.
The question becomes what the risks are to the so far
bullish start to 2023 for iron ore prices and volumes.
The chief one is that China's economic recovery focuses more
on boosting consumer spending than it does on rebuilding the
residential property sector.
China's economic growth target for 2023 is a relatively low
5%, and it's possible that this could be achieved largely
through rising consumer spending, which would support increased
demand for energy commodities such as crude oil as demand for
transportation increased.
The struggling residential property sector has shown some
signs of improvement in the first two months of the year, but
most indicators are still in negative territory, so ultimately
it's still a drag on steel demand.
The first two months of the year saw a 5.7% drop in property
investment, although this was an improvement on the decline of
10% for 2022 as a whole. New housing starts declined 9.4%, still
negative but better than the 39.4% slump in December.
Given that construction accounts for nearly a third of
China's domestic steel demand, it would mean that the other
sectors would have to pick up substantially.
Vehicle and goods manufacturing offer some hope, but they
are also exposed to any sharp slowdown in the rest of the world,
given China's status as the world's biggest exporter of
manufactured products.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.