By Cate Hull
On the world stage, the United States and China are reportedly close to a trade agreement.
How that will affect world trade remains to be seen.
China is in the midst of an industrial slowdown. In a rare acknowledgment of weakness from the Chinese state, Premier Li Keqiang recently said the trade war with the United States, which has seen the two countries swap tit-for-tat tariffs on a combined $360 billion worth of goods, was having a material negative impact on the economy.
“What we faced was profound change in our external environment,” Li said at the opening of China’s National People’s Congress, as reported by several news outlets.
Which brings us to Australian iron ore. Chinese steel mills are slowing iron ore purchases and seeking cheaper alternatives to Australian supplies after a steep run-up in prices in February, five mill executives and several traders told Reuters this week.
Benchmark prices for ore with 62 percent iron content published by Steelhome soared as much as 24 percent following the fatal dam collapse at a Vale SA-owned mine in late January, which sparked concerns about tight supplies.
Prices peaked just above $94 per tonne on Feb. 11, and traded at $86 on March 1, far above January’s average of $76 and the 2018 average of $69, Steelhome data showed.
“We are holding off restocking and running with a low inventory since current prices are too high,” said a purchase manager at a large steel mill in China’s top steelmaking province Hebei.
Steel demand in China, the world’s largest consumer of the metal, has cooled recently amid an overall industrial slowdown which has pressured profit margins at mills.
Four other mill managers said their iron ore inventory had dropped to less than 15 days of use, lower than the normal level of 22 days.
While ore stocks by mills have tightened, those held at Chinese ports have swelled so far in 2018, reaching 145.05 million tonnes by Feb. 22, the highest since late September, SteelHome data showed.
Mills are also avoiding major suppliers like Vale and Australian rivals Rio Tinto, BHP Group and Fortescue Metals Group (FMG), and are seeking cheaper ore from small miners in Australia, South Africa, India, and Indonesia, said the traders.
“Even mainstream low-grade ore has soared to a level that we can’t afford,” said a purchase manager at a steel mill in Jiangxi province.
The Jiangxi mill purchase manager said it bought iron sand from Indonesia with 56 percent iron content to save on costs.
“Non-mainstream products suddenly became very hot, although more people are asking rather than making actual purchases,” said a manager at a major commodities trading house in eastern Zhejiang province, according to Reuters.
Cate Hull is the CEO of FreightExchange, a freight and logistics company based in Sydney.