Importance of iron ore imports
In addition to coal, China is also the world’s top iron ore consumer. China imports almost 60% of the world’s seaborne iron ore. In 2014, China imported 932.5 million tonnes of iron ore, a growth of 13.8% from 2013 levels. Both iron ore and coal account for nearly 30% each of the world’s dry bulk trade volume.
The Guggenheim Shipping ETF (SEA) as well as dry bulk shippers such as DryShips (DRYS), Diana Shipping (DSX), Navios Maritime Holdings (NM), and Safe Bulkers (SB) that haul key dry bulk materials such as iron ore, coal, and grain across the ocean have a direct correlation with commodity imports data. Lower imports have a negative impact on these companies.
Iron ore imports
Iron ore imports were down 9.4% year-over-year to 78.6 million tonnes in January 2015, according to the General Administration of Customs data. On a year-over-year basis, average prices dipped 45.1% to $70.46 per ton.
The dip in iron ore imports was led by the fall in steel prices starting in December 2014. According to Liu Xinwei, an iron ore analyst with Shandong-based commodities consultancy Sublime China Information Group Company, steel prices were steeper than iron ore prices. This resulted in a drop in steel producers’ profits.
In addition, a larger number of steel furnaces underwent maintenance in January 2015 compared with the previous years, which resulted in scaled back production.
Going forward
Looking ahead, China’s iron ore imports in February 2015 will continue to remain low because of ongoing maintenance. For 2015, the China Iron and Steel Association estimates that Chinese iron ore imports will grow by 7.1% and exceed the 1 billion ton barrier for the first time. Shipping analysts believe the increase in iron ore imports will be led by declining domestic supply coupled with falling iron ore prices.
Source: Market Realist