Overall, Chinese demand for imported iron ore cargoes has remained very firm despite the fair amount of fear that persists regarding China. Iron ore import prices are low and attractive to Chinese steel mills. Traders are reporting that Chinese steel mills have been increasing their usage of imported iron ore over domestic iron ore, and such a view is supported by the strong level of iron ore chartering seen in the dry bulk market. Smog and pollution remain a concern in China, and mills consuming a larger proportion of imported iron ore over domestic iron ore is likely to continue as imports are of much higher quality and pollute much less than domestic iron ore. Chinese iron ore averages only about 15 to 20% in iron content, while iron ore imports typically exceeds 50% in iron content and are much less harmful to the environment.
Data released from the Chinese government this week shows that domestic iron ore production in January and February totaled 183.27 million tons. This marks a year-on-year increase of only 8.1 million tons (4.5%) and pales in comparison to the 14.5% growth seen in Chinese iron ore production seen during the same period last year. During the first two months of this year, global spot iron ore prices have been approximately 23% cheaper than they were last year. This has held back growth in domestic iron ore production in China, as smaller Chinese miners are faced with much higher mining costs than the international iron ore exporters in Australia and Brazil, with some smaller Chinese miners currently being priced out of the market. Iron ore miners in Australia and Brazil are continuing to profit very well from low spot iron ore prices however. This is great for iron ore seaborne trade prospects.
Australia`s Bureau of Resources and Energy Economics (BREE) released its latest quarterly trade forecast this week and predicts Australian and Brazilian iron ore exports this year will increase by a total of 139 million tons (15%) from 2013`s total. This is at the top of Commodore Research`s own long-standing forecast of an increase of 120 - 140 million tons that we have been predicting since last year. According to BREE, Australian iron ore exports this year will total 687 million tons, which would mark an increase of 108 million tons (19%) from the 579 million tons exported in 2013. BREE also predicts that Brazilian iron ore exports this year will total 361 million tons, which would market an increase of 31 million tons (9%) from the 330 million tons exported in 2013. Overall, Chinese demand for imported iron ore cargoes has been strong recently and is expected to remain strong this year.