Markets: China's iron stomach

Morgan Stanley’s Joel Crane says Chinese steel production is 'cranking', underpinning iron ore prices.

China’s Tianjin spot iron price is up every day since June 27 bar one. That’s perhaps no surprise. China’s latest import data shows in June the country’s total iron ore imports were 63.2 million tonnes in June, up 7 per cent from June 2012.

Year-to-date Chinese iron ore imports have increased 5 per cent year-on-year to 384.5 million tonnes. “This is in line with our expectations for growth in crude steel production,” Morgan Stanley analyst Joel Crane told Markets Spectator. “Chinese steel production is cranking.”

China’s 2013 steel production is now running at an annual rate of 796 million tonnes compared with total production of 711 million tonnes in 2012. This is helping the Tianjin iron ore price, up 12 per cent since May 31. Iron ore imported through the northeast Chinese port of Tianjin yesterday rose US20 cents, or 0.2 per cent, to $US123.90.

Crane doesn’t expect any “flash crash” in the iron ore price this year as happened to the iron ore price last year when it fell to about $US86 a tonne.

Chinese steel mills will probably maintain iron ore inventory levels at between 300,000 and 400,000 tonnes, down from more than 600,000 tonnes last year, the Morgan Stanley analyst says. A credit crunch in China now means that steel mills cannot have huge iron ore stock piles, says Crane. That will limit the ability of steel mills to destock and limit potential restocking thereby leading to a greater stability in the iron ore price, he says.

In the second half of this year Crane forecasts the spot iron ore price will average $US125 a tonne. In 2014 it will be $US117 a tonne, he says.

At 1113 AEST shares in BHP Billiton, the world’s biggest mining company, added 64 cents, or 2 per cent, to $32.47. Rio Tinto, the world’s biggest iron ore miner, rose 85 cents, or 1.6 per cent, to $53.24. Iron ore miner Fortescue gained 6.5 cents, or 1.9 per cent, to $3.425.

The S&P/ASX200 Index was up 51.644, or 1.1 per cent, to 4953, after earlier rising as much as 4963.20.

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