Chinese steel exports continued to weaken in September, presenting yet another downside risk to the outlook for iron ore prices.
According to Vivek Dhar, a mining and energy analyst from the Commonwealth Bank who has been warning about the potential for a pullback in prices after recent strength, net steel product exports from China fell by a further 2.9% last month, taking the decline from a year earlier to 25%.
At 7.7 million tonnes, September’s figure was the lowest seen since February this year.
The chart below from the Commonwealth Bank shows the surge in net Chinese steel product exports up to 2015 along with the recent plateauing, and reversal, of export volumes:
Dhar suggests that much of recent weakness has been as a result of heightened trade frictions between China and other major steel producing nations, along with ongoing tepid demand globally.
“China’s steel exports may finally be responding to trade barriers put in place by countries like US, Europe and India, as they try to protect their respective domestic steel industries,” he said in a note on Monday.
Fitting with this view, Dar notes that Indian steel imports have declined 37% year-on-year from April to September, reflecting “government measures to restrict the inflow of cheap imports”.
The decision from India mirrors similar moves from the US and European Union, he says.
“In May, the US increased tariffs to more than 500% on cold-rolled Chinese steel imports to combat unfairly cheap prices,” says Dhar. “The European Union also imposed additional tariffs earlier this month on certain steel products.”
In unison with recent restrictions announced by many large Chinese cities to curb rampant property price growth, it could lead to weaker domestic steel demand, notes Dhar, hinting this “outcome should weigh on iron ore demand and prices”.
Despite the growing risks pointed out by Dhar, so far it has had next to no impact on iron ore spot or futures prices which continue to find support on even the smallest of dips.
Following China’s Golden Week holiday in early October, the spot price for benchmark 62% fines hit $US57.28 a tonne, according to pricing from Metal Bulletin.
It rose 2.54% for the week — the highest level seen since early September — extending its gain in 2016 to 31.5%.
And futures markets in Dalian closed at their highest levels since late August on Friday.
If investors are concerned about the prospect of a slowdown in Chinese steel production levels, it’s not evident as yet.