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PERTH (miningweekly.com) – China’s drive to clean up its steel industry’s environmental act was expected to have little impact on iron-ore demand in the short term, advisory firm Wood Mackenzie said on Friday.
While China has instituted a number of emergency measures on regional steelmakers, with mills in Tangshan ordered to suspend at least 30% of production, Wood Mackenzie noted that there was sufficient unused capacity within China's steel industry ready to replace any lost production, owing to shutdowns resulting from enforcement of the new emissions regulations.
"The iron-ore market is understandably spooked by what's going on in China due to the introduction of the environmental controls and their potential financial impact on the steel industry. This has sparked much uncertainty and speculation,” said Wood Mackenzie’s principal iron-ore markets analyst, Paul Gray.
“This is one factor that has caused price volatility, with prices plunging to 17-month lows in recent weeks before picking up again very recently. However, during the remainder of 2014, we expect that fighting emissions will have negligible impact on total Chinese crude steel production and limited impact on iron-ore demand in terms of quantity, with Chinese imports of iron-ore predicted to rise by a further 90-million tonnes in 2014 to a record 921-million tonnes."
Gray noted that of longer-term significance was the seaborne market's anticipated transition as it moved towards a position of excess supply capability when Chinese demand struggled to absorb all the additional seaborne supply earmarked for 2014 and 2015.
“2014 will certainly be a transition year for iron-ore, but we think this is not necessarily related to China's environmental measures - it's more symptomatic of rising Australian supply and slowing Chinese demand,” he added.
Mining majors BHP Billiton and Rio Tinto have expressed their continued optimism regarding China’s demand for iron-ore, with both companies increasing production of their Pilbara ores. BHP Billiton believed China’s steel production would peak at 1.1-billion tonnes within the next ten years.
The Western Australian government recently approved a $880-million expansion of Rio’s iron-ore operations in the state.