China not to blame for Iron Ore price woes

Despite a solid month of crude steel output for China in June, iron ore prices have fallen to new seven-month lows.

Iron ore prices fell to well under $US100 a tonne for the first time in eight months last week and remained under the $US100 mark in Asian trading Monday afternoon.

Iron ore prices fell 16% last week (for 62% Fe fines delivered to northern China from the Pilbara) – the SGX futures market ended at $US96.15 a tonne, down from $US114.60 a week earlier and the lowest price since last November’s sell off. The SGX price was around $US98 a tonne Monday.

MBFastmarkets prices saw a 4% fall to just over $US96 a tonne on Friday as well and it was still weak Monday.

Some investors were heartened by the news that China turned out 90.73 million tonnes of crude steel last month, according to data from China’s National Bureau of Statistics.

That was down 6% from 96.61 million tonnes in May and down 3% from the 93.88 million tonnes produced in June, 2021.

But monthly production at or above 90 million tonnes is a solid outcome, even if steel product prices are weak with demand from construction lower because of Covid, bad weather and the property sector problems.

Chinese government ministers and officials keep making nice noises about encouraging support for home buyers and property companies (and trying to end the growing mortgage boycott among some Chinese home buyers)

Halfway through 2022, China’s crude steel production is on track to remain above 1 billion tonnes for the full year, despite warnings earlier in the year of more restrictions on production to control Covid and cut carbon emissions.

In the first half of 2022, China produced 526.8 million tonnes of steel, down 6.5% from same period a year ago, the statistics bureau said Friday. That was a smaller rise than the 10.3% drop in the first four months of the year to end of April to 336.15 million tonnes.

At the half-way stage of 2021, China had produced 563.33 million tonnes crude steel up jumping 11.8% from the frst six months of Covid-hit 2020.

China has experienced severe weather conditions since June, with heatwaves in northern and central China driving temperatures up to 40 degrees Celsius while heavy rains caused floods in the south.

Several mills in China, the world’s top steel producer, have also idled production facilities or placed them under maintenance earlier than usual due to weak margins and high inventories.

Iron ore imports into China in June also slipped from a year earlier, though only modestly, on the back of weaker demand from the steel industry.

China’s iron ore imports in June totalled 88.97 million tonnes, down 0.5% from a year ago and around 3% from May’s 92.5 million tonnes.

That saw total imports for the first six months of the year fall 4% to 535.75 million tonnes – imports had been down 10% earlier in the year.

Interestingly, Monday saw a surprise announcement from European/US carmaker, Stellantis that it was ending its Jeep joint venture in China.

Stellantis announced what it called the “orderly termination” of its joint venture with Chinese partner GAC, which has been producing Jeep vehicles since 2010.

 The venture has been loss-making in recent years – the JV started in 2015.

Stellantissaid it will take a non-cash impairment charge of approximately 297 million euros ($US299.5 million) for its first half 2022 results.

“The Jeep brand will continue to strengthen its product offering in China with an enhanced electrified line-up of imported vehicles meant to exceed Chinese customer expectations,” Stellantis added.

Stellantis owns the jeep, Chrysler, Fiat, Alfa and Peugeot brands.

Sales in 2021 fell 49% to just over 20,000. Hardly any models were sold this year.

But it’s a tiny bit of bad news for steel demand.