World Economy

China Iron Ore Imports to Shrink

China Iron Ore Imports to ShrinkChina Iron Ore Imports to Shrink

Goldman Sachs is forecasting that steel consumption in China will shrink again from next year after a brief respite in 2016, and the nation’s iron ore imports will eventually start to decline too as policy makers shift the economy away from investment.

Steel demand will contract 2% in 2017 and a further 2% in 2018 following a 1% expansion this year, Goldman said in a report that summarized results of new modeling. China’s steel consumption may end up dropping as much as 20%, according the bank, Bloomberg reported.

Asia’s top economy accounts for about half of the world’s steel production, and the prospect of weakening demand for the alloy, as well as lower imports of iron ore, represents a challenge for miners including Rio Tinto, BHP Billiton and Vale. While the biggest low-cost producers have managed in recent years to expand seaborne sales into China as local mine output was displaced, Goldman’s outlook raises the prospect of a shrinking market.

“Demand for imported iron ore has benefited from the closure of domestic mines and the strength of Chinese steel exports earlier this year,” analysts Hui Shan, Amber Cai and Christian Lelong wrote in the report. “But neither of those trends is sustainable and falling steel consumption will eventually lead to a decline in iron ore imports,” it said.

  Rising Prices

Ore with 62% content delivered to Qingdao was at $54.33 a dry ton on Friday, according to Metal Bulletin. Prices have gained 25% in 2016 after dropping for three years. Goldman Sachs left its long-run forecast unchanged at $35 a ton.

China imported a record 953 million tons of iron ore in 2015, up from 933 million tons in 2014 and 619 million tons in 2010, according to customs figures.

In a separate June 15 note, Goldman forecast China would import 971 million tons this year, then see shipments little changed at 975 million tons in 2017, before dropping through 2020, when they would total 904 million tons.

Australia’s government has signaled it expects China’s iron ore imports will plateau from next year as steel output declines, while the country’s top miners have said they see steel production still rising. Overseas iron ore purchases may climb to 1.03 billion tons in 2017 and hold at about that level over the next five years, according to the Department of Industry, Innovation & Science.