China: Environmental policies hit iron ore market - Westpac

Justin Smirk, Research Analyst at Westpac, suggests that China’s robust steel production & soft imports are supporting iron ore prices while spreads widen.

Key Quotes

“Demand for iron ore has been very robust this year but more importantly there has been the collapse in Chinese ore production in response to industry reforms as well as a soft patch in imports.”

“The more rigorous implementation of environmental policies has hit iron ore miners hard.”

“Chinese steel industry reforms boosted the remaining steel mill margins thus supporting higher input prices.”

“The focus on improving efficiencies has increase the demand, and the premium, for higher grades of iron ore while domestic ore prices are supported by the collapse in supply and the rising cost of production.”

“Our forecasts for flat Chinese steel production in 2019, and a modest lift in ore imports, drive our forecast for modest price correction in iron ore prices. However, the discount for 58%fe is likely to remain around 40%.”