kevin tang, brazil-china chamber: china - iron ore imports and the worldwide implications

China’s iron ore production, pricing and outlook

Kevin S. Tang - America’s Iron Ore – Rio de Janeiro, 11/11/2013

Steel & Iron ore imports, pricing and

production

Inventory, cost curve & volatility in prices

Central committee 3rd plenum reforms

Continued growth

Long term outlook

Chinese Iron Ore Imports and Crude Steel production

World crude steel output

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

Jan Feb Mar Apr May Jun Jul Aug Sep

2012

2013

China’s 2012-2013 y.t.d. 9% increase in production.

Hope for soaring demand?

Source: World Steel Organization

Increase in steel production driving price down…

… and steel inventories up

China’s growing share of iron ore imports = aprox. 70% of global trade

Brazil + Australia = aprox. 70% of China supply

Chinese iron price x domestic production

Chinese iron ore price x capesize index

Chinese iron ore imports

Price volatility results from market structure – Demand more

than supply

50% of imports through traders

Aprox 100 authorized importers (60-70 mills/ 30-40 traders)

Mills also have trading book and take advantage of their position

04/11/2013

Inventory at ports:

77,82 MM Tons

Oct-13

Inventories stable in 2013, down lowest levels in 3 yrs.

Producers lighten stock acquired during lower prices in 2011

Inventories should remain at recent history levels of circa 80 MM tons

Sep=13

Sep/13 = 110%

China – Price x Inventory

Chinese 62% Fe price index

04/11/2013

Inventory at ports:

77,82 MM Tons

Chinese 58% Fe price index

Iron Ore Cost Curve

Big 3 dominate low cost (<U$50/ton)

Chinese domestic production most expensive (>U$90-125/ton)

Despite continuous growth, large new capacity coming to market

should keep prices in check

Chinese high-cost domestic producers crowded out?

China - Produção Doméstica Vs. Importação

As downward pressure on iron ore prices continues with new added

capacity > iron ore/ steel demand.

Will continous Chinese domestic production expansion be viable? Not

likely

Politics in play: 3rd Central Committee Plenum (Nov 2013)

Most significant reforms in 20 yrs : Economic and

Social changes to continue prosperity and stability

To continue growth in more sustainable and balanced

way

Reduce distortions, modernize economy and promote

market efficiency

Prepare China for the next stage of development

Politics in play: 3rd Central Committee Plenum (Nov 2013)

Most significant reforms in 20 yrs : Economic and

Social changes to continue prosperity and stability

o Environment –

Cleaning up industry

Recycling / Scrap policy

Pressure on production

Efficiency

Industry consolidation

Politics in play: 3rd Central Committee Plenum (Nov 2013)

o Land reforms –

Continued growth in

countryside, equality

More infrastructure,

consumption and urbanization

o SOE and Financial reform –

Less subsidized interest rates to SOE producers

Reduced SOE power

Market liberalization

Focus on results

Politics in play: 3rd Central Committee Plenum (Nov 2013)

China steel stock of 6 billion tons (#2 USA has 3 billion tons)

Scrap to begin affecting future iron ore imports within 10 yrs

Steel of initial growth of China from 20 yrs will come to market

Today still heavily iron-ore dependant. Jan-Jun 2013 – Major

chinese steel cos. used 21.57 MM tons (-7% Jan-Jun 2012) due

to removal of scrap incentive

Energy constraint and greener policies,

favor recycling and electric furnaces

Xie Xie!

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