Iron ore price under pressure from Chinese mine restarts
The Northern China import price of 62% Fe content ore drifted lower to trade at $81.60 per dry metric tonne on Thursday according to data supplied by The Steel Index, bringing the pullback over the past two weeks to 12%.
Worries about supply and stockpiles at record highs are worrying the market. According to estimates from Rio Tinto, world number two producer, 296m tonnes of additional seaborne supply have entered the market in the last three years.
The Melbourne-based diversified giant forecasts supply growth to slow but a combined 100m tonnes from the world's top six producers are expected to be added to supply this year (40m tonnes) and next.
The potential reboot in Chinese iron ore production is the main source of uncertainty
It's not only low-cost miners from Brazil and Australia that are clouding the outlook, but domestic Chinese supply which have fallen by 140m tonnes from its peak to around 260m per year, but are now making a comeback:
"Additional capacity in Brazil and Australia is already reflected in iron ore prices, so the potential reboot in Chinese iron ore production is the main source of uncertainty and therefore the likely factor that will result in price volatility," Kellie Parker, Rio's managing director for planning integration and assets, told an industry conference on Wednesday.
BHP Billiton, the world's third-biggest iron ore producer, expects to see some idled iron ore capacity in China returning to the market, but could not estimate how much.
"We think if the price maintains the level that is attractive, you will see some (capacity return)," Edgar Basto, president of BHP's Western Australia Iron Ore Asset, told reporters at the same event.
Rio said with the release of its latest financial results that roughly 30m tonnes of Chinese supply had already come back online.
According to Umetal's survey of 42 ports in China, the total iron ore inventory scaled 130 million tonnes for the first time on record this week. But in terms of months of import cover stockpiles represent, the picture looks less dire as China-bound cargo volumes continue to rise.
Total imports for January-February climbed 12.6% to 175.3 million. Chinese imports of iron ore for the full year 2016 topped one billion tonnes for the first time. The 1.024 billion tonnes constitute a 7.5% increase over the annual total in 2015.