CHINA is building up its iron ore stockpiles to take advantage of the commodity’s weak prices despite deliberately slowing steel production over the past month.
New figures released by Xinhua-China Iron Ore Price Index showed stockpiles of imported iron ore at 33 major Chinese ports surged 1.44 per cent last week compared with a week earlier due to weak demand.
Iron ore inventories at the 33 ports across China rose by 1.47 million tonnes to 103.44 million tonnes, one of the highest levels in the past year. Most Australian imported iron ore is stored at the Tianjin port, south of Beijing, the largest in China.
The Xinhua report said a slowing economy and mounting environmental pressure was hurting the profit margin of the steel industry, softening demand for iron ore.
China has slowed production and output in the Hebei region, the steel capital of China, in a bid to reduce pollution during the Asia-Pacific Economic Co-operation leaders’ meeting, which begins today in Beijing.
Production at more than 100 plants in the province has been shut down to ensure there are blue skies in the capital when the world’s political and economic leaders arrive.
The move, along with uncertainty over China’s future economic growth and worries about the its steel industry, has created major volatility in the iron ore price over the past few months.
The commodity is now trading down 44 per cent this year and Morgan Stanley last week forecast iron ore could head to $US70 a tonne by the end of December.
The investment bank said the price could be further pressured by Chinese steel mills experiencing trouble accessing finance.
In Beijing, China Energy Net analyst Han Xiaoping said it was likely that iron ore prices would drop further as greater supply, especially from Brazil, came on to the market.
“The sharp fall that we have seen in the iron ore price is due to the fact there is a major supply and demand imbalance in the market right now,” Mr Han told The Australian.
“The amount of iron ore coming on to the market keeps growing, but demand is shrinking in China because there is an economic transition under way and the economy is stagnant.
“I don’t see demand growing in a big way in the future because the growth up until now has been very substantial and steel consumption has reached a peak.”
Lange Steel Information Research Centre director Xu Xiangchun said current iron ore inventories were almost a record, which occurred in April when China had 120 million tonnes on hand.
“The Australian producers are currently expanding their output but I do not think that demand is going to be better in the next two to three years,” he said.
“The foreign companies are trying to gain market share, but almost half of the small iron ore producers in China have gone bankrupt and the big steel companies are also struggling.”
Shandong Steel, the largest steel company in China’s east, this week said it would sack 10,000 workers in the next few years in an attempt to restore profitability. It has forced its top ranking managers to take major pay cuts of up to 50 per cent to bring down the company’s costs.
Chinese President Xi Jinping yesterday told the APEC chief executive summit if Chinese economic growth slowed to 7 per cent the country would remain in strong shape.
Source: The Australian
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