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LAUNCESTON, Australia, Aug 15 (Reuters) – A swathe of
poor economic data in China is putting pressure on the price of
iron ore, which is struggling to hold above the key
psychological level of $100 a metric ton.
However, the run of soft indicators in China’s embattled
property sector has yet to translate into a significant decline
in the volume of imports of the main raw material used to make
steel.
Commodity analysts Kpler and Refinitiv are estimating that
August imports will top 100 million metric tons, which would be
the first time this has happened since March’s customs figure of
100.23 million.
Kpler is estimating that China, which buys about 70% of
global seaborne iron ore, will see imports in August of 108.5
million metric tons, while Refinitiv has a more conservative
100.8 million.
While these figures are likely to be revised as more cargoes
are assessed, it is likely that iron ore imports will rebound
from July’s official 93.48 million metric tons, which was the
lowest since April.
It’s likely that the lower spot prices for iron ore in
recent weeks are encouraging traders and steel mills to boost
imports.
It’s also the case that there is still optimism that Beijing
will boost stimulus measures to shore up not only the property
sector, but also other steel-intensive industries such as
manufacturing and infrastructure.
Iron ore futures in Singapore ended at $103.47 a
metric ton on Monday, down 1.3% from the previous close and
approaching the three-month low of $103.21 hit on Aug. 3.
The immediate catalyst for the decline was more bad news in
China’s property sector, with major developer Country Garden
seeking to delay payment on a private onshore bond,
the first time it has done so.
The problems at Country Garden are stoking fears of
contagion in China’s property sector, which is facing a cash
crunch.
LOANS TUMBLE
Adding to the property woes was data released on Tuesday
showing China’s industrial output and retail sales slowed and
undershot forecasts.
Industrial output rose 3.7% from a year earlier, slowing
from the 4.4% pace seen in June, while retail sales gained 2.5%,
down from a 3.1% increase in June and missing analysts’
forecasts of 4.5% growth.
There was further bad news in data released on Aug. 11
showing China’s new bank loans tumbled in July, with the 345.9
billion yuan ($47.8 billion) extended being down 89% from June,
and the weakest since late 2009.
The weak lending figures added to the poor sentiment brought
about by the world’s second-largest economy slipping into
deflation in July, the decline in both imports and exports and
persistently soft manufacturing indexes.
Certainly the economic data isn’t supportive of stronger
iron ore import volumes.
This means that if the likely increase in imports in August
is to be sustained in coming months, the market will have to
believe that stimulus efforts will work and that steel demand
will hold up, or even increase.
There are signs that the authorities are stepping up efforts
to boost the economy, with the central bank cutting policy rates
on Tuesday, the second reduction in three months.
Lower iron ore prices may also boost imports, but only if
traders believe that they are likely to recover and that the
downward pressure isn’t the start of a new bearish trend.
Another potential factor supporting iron ore imports is the
low state of port inventories, which last week dropped to the
lowest in just over three years.
Port inventories
metric tons in the seven days to Aug. 11, down from 120.5
million the previous week, according to data compiled by
consultants SteelHome.
They are also below the 138.6 million metric tons in the
same week in 2022 and the 127.2 million in 2021.
Overall, iron ore imports are likely to be caught between
the reasonable fundamentals of weaker prices and low port
stockpiles, and the bearish sentiment coming from the mounting
woes across China’s economy.
(Editing by Robert Birsel)
