Bulk Buys: China's pollution crackdown a familiar tale amid iron ore price run

China is again ordering sintering restrictions to crack down on pollution from its steel mills
It comes after limits were placed on Dalian futures trading last week to bring the heat out of prices
Junior miner CuFe posts maiden resource for Yarram project

China pays absolute squillions to get Australian iron ore to its shores, essential to feed what is the largest steel industry in the world.

For the past three years it’s produced over 1 billion tonnes, a streak BHP (ASX:BHP) economist Huw McKay thinks will extend to 5-6 years.

In order to achieve that it has no option but to buy Australian iron ore in droves.

We export around 900Mt of iron ore a year. ~700Mt of that goes to our frenemies.

It is one of the main reasons Australia is running a massive current account surplus, with a bullish run for commodities in the December quarter lifting it by $13.4b to $14.1b in the three months to December 31 according to the ABS yesterday.

“Australia’s current account surplus was supported by sustained high commodity prices over 2022, with the value of mining commodity exports reaching over $400 billion for the year,” ABS head of international statistics Grace Kim said.

China’s reopening from Covid has been a big factor there.

Prices peaked at an eight-month high of more than US$130/t last week, having traded under US$80/t on October 31.

That has stirred alarm in the Middle Kingdom, which was hoping the introduction of a new centralised negotiator for state-owned steel mills called the China Mineral Resources Group would tame price volatility.

BHP’s Mike Henry revealed last week the world’s biggest miner, an exporter of almost 290Mt of iron ore lump and fines a year, had an MoU with the CMRG, but focused more on their shared decarbonisation and sustainability goals than price negotiations.

With prices still above long term highs we’re back to what appears to be a form of jawboning, with China pulling some familiar levers.

Futures markets and pollution crackdowns

The first familiar action came last week with MySteel reporting a limit on trading volumes had been placed on Dalian iron ore futures contracts by the Dalian Commodity Exchange.

By removing the daily liquidity, the limits were intended to take heat out of the iron ore market after a ~60% run in prices from their recent 2022 lows.

Another measure which could crimp iron ore demand, also reported by MySteel, was news of pollution crackdowns in Tangshan, a key steelmaking city.

Limits of between 30-50% would be imposed on sintering operations, the carbon intensive step that turns iron ore fines into solid masses that can be used in the blast furnace.

The move sent prices in Dalian down yesterday, though Singapore futures, often thought to be closer tied to fundamentals and less sensitive to meddling by Chinese policymakers, were up marginally to US$123.60/t.

“Iron ore fell sharply after China ordered production cuts at the Tangshan steel making hub,” ANZ’s Felicity Emmett said in a note yesterday.

“With a forecast of heavy air pollution, authorities have moved to reduce heavy’s industry impact on air quality.

“This comes after inventories of iron ore rose, with total stockpiles held at ports rising 1.2% last week to the highest level since September.”

The bigger picture for this year is mixed.

Steel production across the world was down 3.3% year on year in January but rose 2.3% in China. But that was nowhere near the 10.8% decline seen in December.

The China Iron and Steel Association expects steel consumption within China to remain similar to 2022 at 950Mt, unless the pace of its real estate recovery is slower than expected, CISA VP Luo Tiejun told delegates at a scrap steel conference in Changdu last week.

That paints a picture of a market in equilibrium, though MySteel also last week reported a rise in downstream steel demand, backing a seventh straight weekly rise in blast furnace utilisation to almost 87%.

That is positive for iron ore prices, though it could be tempered if there are few disruptions to supply this year, with iron ore arrivals from Australia and Brazil up 3.9% week on week last week to 23.9Mt, including a 7.4% rise in tonnes out of Vale and 8.9% lift in Brazilian arrivals to 5.9Mt.

CuFe posts maiden NT resource

While history shows it can turn on a wind, including those blown out of Chinese regulators, iron ore prices are currently supportive of lower margins, junior producers.

If current levels hold for the second half of the fiscal year, small scale producers like Fenix Resources (ASX:FEX) and Mt Gibson Iron (ASX:MGX) would be licking their lips and likely eyeing dividends after turning modest but handy profits in the first half of the financial year.

Tony Sage-chaired CuFe (ASX:CUF) is hopeful it can craft an investment case for the similarly small scale Yarram iron ore project in the Northern Territory, half-owned by the miner of the JWD deposit near Wiluna.

It reported a maiden inferred mineral resource of 12.7Mt at 55.4% Fe with a 48% cutoff, including a higher grade component at a 55% cutoff of 5.6Mt at 60.4% Fe.

Met test work is under way to see what of the sub-55% material can be upgraded across the higher grade Kraken and Captain Morgan deposits.

If CuFe are indeed able to have their rum and drink it too, the Yarram project’s key advantage may be its proximity to port, just 110km from Darwin.

That is compared to the hundreds of kilometres of haulage it faces at the JWD development in WA, where operations restarted in January and the company both exercised its right to mine another 900,000t last week and secured a deal with major shareholder and Yarram JV partner Gold Valley Group to take 100% of the iron ore rights.

CuFe exec director Mark Hancock said the miner has now confirmed the presence of direct shipping quality ore at Yarram.

“We now have a clear picture of the scale and quality of the deposit and can concentrate on progressing development options and regulatory approvals as well as executing the next wave of work to improve the orebody knowledge and confidence level in the newly defined resource,” he said.

“The project proximity to Darwin Port (110km) and nearby infrastructure has always been the key attraction to us of Yarram as it provides the opportunity for a low haulage and port cost, which is typically the key challenge for smaller iron ore projects.

“If the studies which we are kicking off (can) confirm that, it would enable the project to operate across the range of iron ore price cycles.

“The CuFe’s teams ability to execute and operate projects of this scale and style has been well demonstrated and this puts the company in a strong position as it progresses the project forward through the study and approval phases.”

ASX iron ore stocks

Scroll or swipe to reveal table. Click headings to sort.

CODE	COMPANY	PRICE	1 WEEK RETURN %	1 MONTH RETURN %	6 MONTH RETURN %	1 YEAR RETURN %	MARKET CAP
ACS	Accent Resources NL	0.025	0%	0%	-40%	-55%	$ 11,828,182.08
ADY	Admiralty Resources.	0.008	-27%	33%	-20%	-60%	$ 10,428,633.22
AKO	Akora Resources	0.16	-9%	-3%	-3%	-49%	$ 11,189,482.55
BCK	Brockman Mining Ltd	0.025	-7%	9%	-17%	-52%	$ 222,725,571.14
BHP	BHP Group Limited	45.2	-7%	-9%	6%	14%	$ 225,682,305,769.80
CIA	Champion Iron Ltd	7.37	-4%	-5%	34%	18%	$ 3,666,899,263.34
CZR	CZR Resources Ltd	0.205	0%	-13%	-12%	76%	$ 46,488,105.60
DRE	Dreadnought Resources Ltd	0.08	-11%	-27%	-27%	111%	$ 253,617,072.94
EFE	Eastern Resources	0.017	0%	-6%	-45%	-67%	$ 19,871,143.38
CUF	Cufe Ltd	0.016	-11%	-30%	-24%	-53%	$ 16,423,910.21
FEX	Fenix Resources Ltd	0.24	-11%	-11%	-29%	9%	$ 148,961,289.60
FMG	Fortescue Metals Grp	21.4	-5%	-5%	8%	15%	$ 64,073,259,943.58
FMS	Flinders Mines Ltd	0.43	-11%	-14%	-13%	-13%	$ 72,604,888.11
GEN	Genmin	0.2	11%	3%	-20%	0%	$ 59,836,002.25
GRR	Grange Resources.	0.95	-4%	-10%	-30%	29%	$ 1,105,258,456.59
GWR	GWR Group Ltd	0.061	5%	0%	-28%	-59%	$ 19,272,999.30
HAV	Havilah Resources	0.33	-3%	-8%	-13%	89%	$ 109,240,527.45
HAW	Hawthorn Resources	0.1	-2%	-5%	18%	11%	$ 33,501,561.30
HIO	Hawsons Iron Ltd	0.072	-3%	-23%	-79%	-56%	$ 65,238,051.31
IRD	Iron Road Ltd	0.105	5%	-5%	-25%	-40%	$ 80,343,636.10
JNO	Juno	0.088	-4%	-16%	-27%	-8%	$ 11,937,904.09
LCY	Legacy Iron Ore	0.017	13%	0%	-15%	-6%	$ 108,916,045.38
MAG	Magmatic Resrce Ltd	0.091	-2%	-13%	-55%	-4%	$ 27,512,351.82
MDX	Mindax Limited	0.059	0%	0%	0%	0%	$ 117,590,403.12
MGT	Magnetite Mines	0.615	-16%	27%	-53%	-57%	$ 43,606,970.18
MGU	Magnum Mining & Exp	0.019	-5%	-27%	-51%	-71%	$ 14,802,447.85
MGX	Mount Gibson Iron	0.565	1%	-17%	31%	11%	$ 674,002,729.82
MIN	Mineral Resources.	82.56	1%	-10%	27%	84%	$ 15,263,371,393.50
MIO	Macarthur Minerals	0.155	0%	-11%	-14%	-53%	$ 23,191,488.32
PFE	Panteraminerals	0.11	0%	-21%	-8%	-33%	$ 5,665,123.20
PLG	Pearlgullironlimited	0.045	2%	41%	56%	-31%	$ 7,038,730.71
RHI	Red Hill Minerals	4.4	-10%	-6%	26%	29%	$ 299,992,300.30
RIO	Rio Tinto Limited	116.73	-7%	-8%	18%	2%	$ 42,860,624,068.44
RLC	Reedy Lagoon Corp.	0.008	0%	-20%	-47%	-68%	$ 4,533,756.81
CTN	Catalina Resources	0.006	-25%	-33%	-33%	-63%	$ 7,430,921.35
SRK	Strike Resources	0.077	-4%	-14%	-27%	-27%	$ 21,848,750.00
SRN	Surefire Rescs NL	0.014	0%	-13%	-7%	17%	$ 22,139,088.68
TI1	Tombador Iron	0.026	4%	-13%	-4%	-21%	$ 55,561,541.70
TLM	Talisman Mining	0.15	0%	-12%	-6%	-12%	$ 28,160,924.55
VMS	Venture Minerals	0.022	-8%	-21%	-27%	-42%	$ 40,634,274.62
EQN	Equinoxresources	0.21	11%	31%	31%	14%	$ 9,450,000.21
AMD	Arrow Minerals	0.005	-17%	-38%	25%	25%	$ 14,289,454.84

A trickle of Australian coal heads for China

Two defining features of the coal market over the past two years have been the extraordinary prices being pulled by, especially Australian, miners, and the closure of the trade route between Australia and China.

Previously the backbone of the met coal trade, and a part of the thermal coal seaborne market as well, around 40Mtpa used to move from Australia’s east coast to Asia’s largest economy each year.

That stopped thanks to diplomatic tensions in 2020, but a thaw has now begun, with a trickle of Aussie coal clearing customs in the Communist nation’s ports.

CBA mining analyst Vivek Dhar says ship tracking data for the week ending February 17 showed the highest volume of coal shipments to China since October 2020 at 0.8-0.9Mt, also the first time coal shipments have been identified for four consecutive weeks since the unofficial ban began.

It came after a virtual meeting between Australian Trade Minister Don Farrell and his Chinese equivalent on February 6. That was followed by deeply confusing rhetoric that the trade of Australian coal to China was part of “normal commercial activity” by its commerce ministry.

Dhar says there remain a number of roadblocks to Chinese coal imports hitting the same levels as they did at their apex in 2019.

“The ministry’s comments follow reports China allowed three state-owned power utilities and one state‑owned steelmaker (Baosteel) to restart coal imports from Australia in January. A number of coal miners, including New Hope and Coronado, have confirmed they have received inquiries from China for imports,” he said.

“To be clear, Australia’s coal shipments to China still remain well below levels before China’s unofficial ban went into effect. In 2019 and the first nine months of 2020, Australia’s coal shipments to China averaged 1.7‑1.8Mt/week. This was a step higher than the 1.5‑1.6Mt/week exported in 2017 and 2018.”

China is seen as a potential buyer for high quality Australian met coal, but is more likely to take 5500kcal thermal coal if it does dip into overseas energy markets than 6000kcal Newcastle thermal.

High CV coal is more suited to power plants elsewhere in Asia like Korea, Japan and Taiwan.

Newcastle thermal futures were paying US$197/t yesterday, with premium hard coking coal futures selling for ~US$371/t.

ASX coal stocks

Scroll or swipe to reveal table. Click headings to sort.

CODE	COMPANY	PRICE	1 WEEK RETURN %	1 MONTH RETURN %	6 MONTH RETURN %	1 YEAR RETURN %	MARKET CAP
NAE	New Age Exploration	0.006	0%	-25%	-14%	-54%	$ 9,333,342.92
CKA	Cokal Ltd	0.175	-5%	-17%	-20%	6%	$ 155,339,081.70
NCZ	New Century Resource	1.11	44%	8%	-39%	-42%	$ 144,818,473.80
BCB	Bowen Coal Limited	0.27	0%	-13%	-33%	26%	$ 496,983,018.42
SVG	Savannah Goldfields	0.175	-5%	-5%	-13%	-24%	$ 33,992,718.84
GRX	Greenx Metals Ltd	0.76	6%	-1%	217%	311%	$ 180,070,529.44
AKM	Aspire Mining Ltd	0.058	0%	-15%	-36%	-29%	$ 29,442,945.13
AVM	Advance Metals Ltd	0.009	-10%	-25%	-10%	-47%	$ 5,220,396.62
AHQ	Allegiance Coal Ltd	0.013	0%	-67%	-86%	-96%	$ 13,063,647.08
YAL	Yancoal Aust Ltd	5.86	5%	0%	1%	68%	$ 8,147,111,326.29
NHC	New Hope Corporation	5.43	6%	-7%	6%	109%	$ 4,764,255,175.80
TIG	Tigers Realm Coal	0.011	-15%	-27%	-48%	-31%	$ 156,800,428.42
SMR	Stanmore Resources	3.53	-6%	-5%	46%	221%	$ 3,208,954,217.04
WHC	Whitehaven Coal	7.23	-4%	-14%	-9%	127%	$ 6,429,293,124.03
BRL	Bathurst Res Ltd.	1.085	1%	33%	11%	43%	$ 196,143,774.50
CRN	Coronado Global Res	1.895	-10%	-8%	15%	42%	$ 3,134,968,475.10
JAL	Jameson Resources	0.073	1%	-23%	-9%	7%	$ 28,580,310.30
TER	Terracom Ltd	0.755	5%	-13%	-33%	136%	$ 604,729,507.43
ATU	Atrum Coal Ltd	0.007	17%	-13%	-7%	-62%	$ 8,350,195.03
MCM	Mc Mining Ltd	0.225	-8%	-38%	2%	248%	$ 89,478,357.53
DBI	Dalrymple Bay	2.51	2%	1%	17%	26%	$ 1,229,488,934.16