Eyes on China as steel needs ease

People acknowledge China's commodities demand - fueled by a boom in the last decade - is easing.

This slowdown is hitting iron ore markets. Platts estimates consumption of steel grew 2.6 percent in the first two months of this year, compared with 9.8 percent a year earlier.

This trend is expected to continue through 2014 as weaker manufacturing activity, oversupply of housing and tighter credit constrains demand for steel; and ultimately the iron ore from which it is made.

Seaborne iron ore supply is expected to grow. Projects, especially in Australia, committed to in the boom years, are coming online.

Growth in supply is expected to outpace growth in demand. So prices of imported iron ore have fallen.

As of March 28, the Platts IODEX was $113 per dry metric ton, down $24 from the same date last year. Average prices in the first three months of the year are down 18 percent on 2013.

Among noteworthy trends of recent months has been a determination by the new Chinese leadership to seriously tackle pollution by steel mills.

With mills under pressure to reduce emissions of sulfur and other matter harmful to the environment, they demand high-grade iron ore with fewer impurities.

This is a problem for companies mining ore with lower iron content. They have been forced to discount. It bodes well for producers of high - grade and lump ore which can be fed directly into the blast furnace without sintering. Sintering is a process of forming a solid mass of material by heat and/or pressure without melting it.

Iron ore markets have become increasingly transparent. Buyers and sellers can access indices and assessments of prices based on physical markets. They can get price information from derivatives markets which have exploded over the last year.

The author is editorial director of Platts China.

The views do not necessarily reflect those of China Daily.

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