China’s iron ore imports rose for the first time in five months in August, but analysts say the bounce in demand for Australia’s most valuable export commodity will prove short-lived.
Further signs that the Chinese government wants to put the brakes on steel production to meet climate goals and cool its overheated property market sent the spot price of iron ore to a seven-month low on Tuesday.
However, stronger-than-expected import and export data for August showed that China’s demand for Australian iron ore might not have peaked just yet, despite frosty relations between the two countries.
Customs data released on Tuesday showed China imported 97.49 million tonnes of iron ore in August, 10.1 per cent higher than in July, breaking four consecutive months of declines.
However, the volume imported was almost 3 per cent down on the 100.4 million tonnes unloaded in August a year ago, and almost 2 per cent lower for the year to date.
By value, however, the amount of iron ore China has imported for the first eight months of the year was more than 80 per cent higher, reflecting a period of record commodity prices. China’s iron ore imports for the first eight months of 2021 were worth $US133.06 billion ($179.25 billion), compared with $US72.88 billion in same period a year earlier.
China’s overall imports and exports surprised on the upside on Tuesday, defying bearish forecasts due to port congestion caused by COVID-19 restrictions imposed last month.
Australia’s exports to China for the first eight months of the year rose 24.2 per cent to $US135.13 billion despite restrictions on some products such as beef, barley, wine and coal.
China’s overall exports rose 25.6 per cent in US dollar terms, beating economists’ forecasts for a 17.1 per cent rise, as global demand for Chinese products picked up on the back of US and European economic recovery. Analysts noted a rebound in consumer goods such as electronics as retailers stockpile ahead of Christmas.
Growth in China’s imports was also stronger than forecast, at 33.1 per cent in US dollar terms.
“While near-term headwinds remain, supply constraints in China have eased and we think the global economic recovery will continue to underpin China’s exports at the end of this year and in 2022,” Louis Kuijs, head of Asia Economics at Oxford Economics, said.
However, he said demand for commodities was expected to be weighed down by a slowdown in the real estate industry.
Analysts said government policies designed to lower steel output to meet Xi Jinping’s carbon emissions targets were also starting to have an impact.
The other main concern for Australian miners is a potential slowdown in China’s property market. UBS this week cut growth forecasts for new starts in 2021 to a 9 per cent contraction compared with 2020, including a 20 per cent drop in the second half. Construction accounts for a large amount of China’s iron ore demand.
Evergrande, one of China’s largest residential property developers, has stalled some construction projects and warned it might default on some of its borrowings. There are fears the company’s debt problems reflect a wider issue with China’s overheated property market, which the government has been struggling to cool.
Analysts warned the combination of China’s carbon policies, a slowing property sector and Beijing’s desire to find alternative markets for iron ore point to a medium-term decline in demand for the commodity from Australia, although this could take time.
”China is working to develop alternative iron ore supplies in Africa to reduce its reliance on Australian and Brazilian iron ore. This will eventually reduce iron ore prices but not until later this decade, given the long lead time to develop the infrastructure to export African iron ore,” Milford Asset Management portfolio manager William Curtayne said.
A military coup in Guinea could also dent China’s hopes that the West African nation become an alternative source of iron ore.
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