Iron ore exports from Port Hedland – the largest loading port in Australia – rebounded strongly in November, partially explaining why the benchmark spot price now sits at the lowest level on record.
According to cargo statistics released by the Pilbara Ports Authority late Monday, iron ore shipments rebounded by 2.3% to 37.334 million tonnes, leaving the year-on-year increase at 8.5%.
Iron ore shipments to China rose to 31.734 million tonnes, a 3.3% increase on the 30.717 million level registered in October. Cargo volumes increased by 9.3% from a year earlier.
While iron ore shipments rebounded modestly, the increase was significantly less than the decline registered in prices over the same time period. During November the benchmark spot price for 62% fines fell by 13.8% according to Metal Bulletin’s iron ore index. Year-to-date it has now fallen by 45%, leaving the spot price at $39.06 a tonne, the lowest level on record.
Though iron ore exports from Port Hedland remain at elevated levels, endemic weakness in China’s steel sector – the largest source of demand globally – could see demand for the commodity drop in the period ahead.
According to China’s state-run news agency Xinhua, citing data from the China Iron and Steel Association (CISA), losses at large and medium-sized Chinese steelmakers ballooned to 72 billion yuan ($11.34 billion) in the 10 months to October as the average sales margin of firms tracked by CISA fell by 1.5%, the largest contraction seen this year.
The losses came despite a fall in Chinese steel output with China’s National Development and Reform Commission (NDRC) reporting that production dropped 2.2% to 675.1 million tonnes in the ten months to October compared to same period a year earlier.
Not only is Chinese steel production already declining, it is expected to contract further in the year ahead, at least according to a leading think tank in China.
Yesterday the China Metallurgical Industry Planning Institute warned that Chinese steel production would likely outstrip demand in 2016, forecasting that production will fall to 781 million tonnes in 2016, outpaced by a drop in demand to 648 million tonnes.
Amidst crippling overcapacity and weakening demand for steel product, Chinese premier Li Keqiang pledged last week to cut back on overcapacity in traditional industries, singling out the nation’s struggling steel and coal sectors as areas of particular concern.
While the shuttering of unprofitable steelmakers may help to bring the steel market back into equilibrium, helping to support prices that currently sit at record lows, this will likely do little to support iron ore demand in the absence of an unexpected, and unlikely, pick up in steel demand in the period ahead.