Ground Breakers: Chinese iron ore demand sags as virus drags on the Middle Kingdom
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Should iron ore miners be concerned after a precipitous drop in Chinese iron ore imports in March?
Traditionally the strongest season for steel production, Covid-19 lockdowns and pollution restrictions around the Winter Olympics and Paralympics led to a massive 14.52% year on year fall in the month of March to 87.283Mt.
Over the March quarter iron ore imports into China dropped significantly by 5.2% year on year to 268.36Mt.
It is not just iron ore that could be dragged by weaker commodity demand, with copper prices heavily reliant too on Chinese demand signals.
Capital Economics commodities economist Kieran Clancy says the weaker imports across a range of commodities could have an impact on high prices for metals, especially copper.
“In any case, the bigger story is that recent virus-related restrictions in China appear to be weighing heavily on commodity demand,” he said.
“We had expected a more accommodative regulatory stance to spur a rebound in Chinese property sales, which is typically positive for commodity demand (particularly demand for industrial metals).”
“But any such rebound now seems to have been delayed by the surge in cases of COVID-19, with new home sales in 30 large cities falling sharply in the latest monthly data to their lowest level in over a decade.”
“In sum, the latest trade data out of China paint a picture of significantly weaker commodity demand. Together with a recovery in supply, we expect this will drag the price of copper (and many other commodities) lower by year-end.”
However, analysts from the Shanghai Metals Market say iron ore demand is set to increase significantly in April, driven by the end of hardline restrictions in Tangshan and measures to improve logistics.
“With the improvement of the domestic pandemic situation, Tangshan, an important iron and steel town has been unsealed. In addition, relevant departments also put forward new implementation policies for logistics,” they said.
“The production of steel mills will gradually return to the normal level, driving the sharp rise in iron ore demand. It is expected that the imports of iron ore will increase significantly in April.”
Dalian futures were down 2.4% this morning while Singapore’s May contract was off 0.38% to US$151.15/t.
On the copper side of the equation not everyone is so bearish, with refined copper production in China up 0.6% in March year on year, a positive trend ANZ commodity strategists Daniel Hynes and Soni Kumari expect to continue.
“We expect China’s demand for refined copper to increase 3.2% to reach 13.6m tonnes in 2022, up from only 1.8% growth in 2021,” they said in a client note.
“Global growth should increase by 2.4%. However, the market faces renewed disruptions caused by the Russia-Ukraine war.”
Russia is the “fourth-largest global producer of copper concentrate behind Chile, Peru, and China, producing around 5% of the world’s copper concentrate”, ANZ said.
“It is also a major producer and exporter of refined copper, making up approximately 4% of the world’s refined copper.”
“As such, we expect copper inventories will remain at multi-year lows in the short term before gradually increasing in the second half of this year. This should provide a solid level of support for copper prices.”
The large miners look to be taking the market higher, led by gold producers after prices touched US$1980/oz.
The All Ordinaries Gold index is up a whopping 2.58% today, with Northern Star, Newcrest (ASX:NCM), Firefinch (ASX:FFX), Gold Road (ASX:GOR), Oceanagold (ASX:OGC) and AngloGold Ashanti (ASX:AGG) all in favour.
The gold index is now up 9.76% for the week and 16.92% for the year to date, a much brighter start after 2021’s disappointing year for precious metals.
Bill Beament’s “green” mining services contractor DEVELOP Global (ASX:DVP) has locked in its first deal, a $400 million contract to mine Bellevue Gold’s (ASX:BGL) namesake high grade underground gold mine in WA.
It fits in with the ESG friendly vision Beament unleashed at Diggers and Dealers last year, having previously been the iconoclastic boss of Australia’s second biggest gold miner Northern Star Resources (ASX:NST).
The previously flagged tender win has curiously drawn Beament back to familiar territory in the gold space after he declared “gold isn’t green” in that wild Diggers reveal last year.
The vision partially hinged on the conviction underground mining generates lower emissions than open pit production, and Bellevue has already earmarked plans to market its bullion as “green gold” with an ambitious 2026 deadline to hit net zero from its operations.
“This is an enormous opportunity for both companies,” he said. “Bellevue is an exceptional gold asset with a great production outlook and low all-in sustaining costs in the heart of WA,” Beament said.
“It is one of the largest contracts in the WA gold mining industry. It is also one of the most environmentally ambitious projects, with the aim of producing Australia’s first carbon-neutral gold.”
“I have no doubt that applying the combined skills and experience of the Bellevue and Develop teams to this exceptional asset will ensure strong returns for all stakeholders.”
For Beament, he returns to the environment that launched him to stardom, as an underground manager for mining contractor Barminco, and he has tapped some familiar names to spearhead his first job at DEVELOP, which also owns copper-zinc mines in WA and New South Wales.
Paul Nilsson and Aaron Armstrong, who have experience in senior management roles at Northern Star and Barminco are on board as manager of underground mining and maintenance manager respectively.
Jordan Hall, who spent 19 years at Byrnecat including at Golden Grove and NST’s Jundee gold mine, has been tapped at the Bellevue gold mine project manager.
It comes at a time when competition for labour, and particularly skilled workers, is fierce across the WA mining sector.