China's quick recovery from the Covid-19 outbreak has steadied iron ore prices this year, but global steel production cuts could divert 4mn-5mn t/month of iron ore to China and start to weigh on its spot markets, especially for pellet.

 

Australian mining firm BHP gave an upbeat iron ore outlook based on robust Chinese demand and supply disruptions, although it acknowledged sharply lower demand for raw materials [in the US, Europe and India.

 

Chinese market participants are turning their attention toward the weaker demand, saying the impact of global steel production cuts and the resulting shift in iron ore supplies has not been reflected in the market yet.

 

South Korea and Japan are already diverting 3.5mn t/month of iron ore to China, said a Beijing-based steel mill trader. The market has been optimistic about Chinese steel and iron ore demand, but it might be underestimating the extent of global steel production cuts and resulting diversions, he said.

 

Vale earlier this week cut its 2020 production guidance by as much as 31mn t of fines and pellet. But these cuts were already reflected in its January-March production, down by 18pc from a year earlier, participants said.

 

The increased pellet supplies have so far been contained to pellet markets, a Shanghai-based trader said. Spot markets for iron ore fines will not be affected that much from European pellet because of lingering supply tightness, he said. "We feel that mills' buying interest is strong recently, so in our opinion, 62pc prices will be stable, and if miners cut more, prices will go up."

 

Steel production amid the 2007-08 global financial crisis fell by 30pc in Europe, 26pc in Japan and 9pc in South Korea, prompting them to cut iron ore imports by 109mn t, or 32pc, in 2009, the bank said. These levels of cuts could send 15mn t of iron ore to China from Europe and Japan this quarter, it forecast. (Argus Media)