The CBA says demand for Australian iron ore and coking coal will remain strong this year

Photo by Pascal Parrot/Getty Images
  • Global steel production grew by 5.2% in 2017, led by strong gains in China and India
  • The Commonwealth Bank says this is supporting demand for Australian iron ore and coking coal exports
  • It expects Chinese steel production — already accounting for around 50% of total global output — to grow by 1.5% in 2018

Growing steel production in China and India will help support Australian exports of iron ore and coking coal again this year.

That’s the view of Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank, who says the momentum seen in 2017 will continue to grow, albeit at a slower pace.

“China and India account for 50% and 6% of global steel production respectively,” he says, adding that production at these two nations alone increased by 5% and 6.2% respectively in 2017.

This chart shows global steel production on a monthly basis going back to the mid-2000s, showing the individual share from major producers.

Source: CBA

In absolute terms, global steel production grew by 5.2% over the year.

Dhar says this growth, especially in Asia, has helped support Australian iron ore and coking coal exports in recent years.

“Given their proximity to Australia and the absence of key resources domestically, Asian countries remain the primary buyers of Australian coking coal and iron ore exports,” he says.

“China purchases over 80% of Australia’s iron ore shipments, followed by Japan (8%) and South Korea (6%). India, Japan and China each buy 20-25% of Australia’s coking coal exports.”

And Dhar expects that demand to strengthen further in the year ahead.

“Australia’s exports to China will likely build again this year, albeit more slowly, as Chinese steel output increases slightly to accommodate a small pickup in domestic demand,” he says.

“We expect China’s steel consumption will grow around 1.5% on the back of infrastructure investment. However, the property sector will likely emerge as a headwind as policymakers target speculation.”

While Chinese production looks set to slow as property construction cools, Dhar says India offers perhaps more opportunity to Australia, particularly when it comes to coking coal.

“India has enough local iron ore to help expand domestic steel output, which is growing at a healthy pace,” he says.

“An absence of good-quality coking coal will mean that India will likely become the main consumer of Australian coking coal in coming years.”

He adds that near-term risks are growing in India’s steel sector “with growth momentum slowing and debt-laden steel companies facing bankruptcy risks.”

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