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Iron ore price up on China’s export growth

Haikou Xiuying Port, China. Credit: Wikimedia Commons.

Iron ore prices were up on Tuesday after China’s June trade data was released.

Imports climbed 36.7% from a year earlier, beating the median forecast of 29.5%. Export growth accelerated to 32.2% in dollar terms, the customs administration said, overturning economist’s expectations of a slowdown to 23%. That left a trade surplus of $51.5 billion for the month, the highest since January.

Chinese exports and imports in June.

“The surprise surge in exports is probably in large part due to rising commodity prices, as commodities like iron ore soared and price pressures passed on from imports to exports,” said Zhou Hao, senior emerging markets economist at Commerzbank AG.

Iron ore futures in Asia rose on Tuesday, with the benchmark Dalian contract advancing by more than 3%.

The most-traded September iron ore on China’s Dalian Commodity Exchange gained as much as 3.5% to 1,227.50 yuan ($189.87) a tonne.

According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $218.48 a tonne on Tuesday, up 0.3% from Monday’s closing.

A consensus is emerging among industry leaders and market analysts that China’s steel demand will ease in the second half of 2021, which may slow mills’ iron ore purchases.

Related read: China to keep economy within reasonable range, act to ease commodity prices

“The growth of China’s steel demand in the second half will be slower than the first half,” said Wang Yingsheng, chief economist of the China Iron and Steel Association (CISA), while speaking at the opening ceremonies for the three-day Singapore International Ferrous Week.

Unfavourable weather in top steel producer China has slowed construction activity, while demand for manufacturing-used steel will also drop as export orders fall, said Wang.

“As we enter the second half of the year, all eyes will be on the extent to which Chinese demand slows and Brazilian supply grows,” said Rohan Kendall, iron ore research head at Wood Mackenzie.

“Progress is slow-going for Vale on its ‘pathway to 400 million tonnes per year’,” he said, referring to the Brazilian iron ore miner’s struggle to increase output, which declined following the Brumadinho dam collapse in 2019.

Goldman Sachs raised its H2 forecast for average iron ore prices to $195/mt from $117/mt, saying it does not foresee a clear, sustained surplus in iron ore markets until 2023, and prices face a more gradual downward path than anticipated.

China’s steel demand this year has shown “immense strength” and surprised significantly to the upside, Goldman analysts say, according to Bloomberg.

(With files from Reuters and Bloomberg)