Chinese Iron Ore Imports: Australia Gaining Share
Time：2014-08-27
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This year, growth in Chinese imports has mainly been driven by the scheduled ramp up of iron ore production in Australia. The rapid growth in supply has led iron ore spot prices to fall by around 30% between January and June 2014. As a result, Australian supply has displaced some domestic low grade Chinese iron ore, which lies at the upper end of the cost curve. In 1H 2014, Chinese iron ore imports from Australia increased 33% y-o-y to 256mt. As shown by the Graph of the Month, Australia’s share of Chinese iron ore imports rose from 53% in January 2014 to 63% in June 2014 as a result of these output expansions.
Pressure From Prices
China’s imports from Brazil in-creased 14% y-o-y in 1H 2014, partly due to less severe than usual seasonal weather disruptions, while imports sourced from West Africa doubled y-o-y due to mine expansions. Meanwhile, imports from South Africa and India also rose during this period.
Elsewhere, lower iron ore prices are currently placing pressure on some other iron ore producers, particularly smaller countries where production is relatively high cost. The volume of Chinese imports from outside of Australia, Brazil, India and South Africa fell 12% from 89.8mt in 1H 2013 to 78.9mt in 1H 2014. Although volumes sourced from these countries are relatively small compared to the major suppliers, these ‘other’ exporters have still lost notable market share in the space of just a few months.
A Question Of Miles?
Australia now supplies more than 60% of seaborne Chinese iron ore imports and in the year to date ac-counted for 84% of y-o-y seaborne import growth. Since trade from Australia to China is relatively shorter-haul, the estimated average haul of Chinese imports has fallen in the year to date, dropping from an estimated 6,048 miles in full year 2013 to 5,748 miles in 1H 2014. However, as Brazilian miner Vale brings significant new mine capacity online in coming years, and Brazil accounts for a greater proportion of China’s iron ore import growth, the average haul of China’s imports is likely to increase again.
So, the ramp up of Australian iron ore output this year has led to significant shifts in the market share of China’s iron ore suppliers. As output grows further, China’s domestic ore is likely to continue to be displaced, while smaller producers may struggle to maintain market share. Further ahead, planned mine expansions in Brazil and West Africa, amongst others, could provide additional tonne-mile demand to China.