Iron Ore Hit Hard as Beijing Cuts Steel Production Again

By Glenn Dyer | More Articles by Glenn Dyer

In bad news for Australian and Brazilian iron ore exporters like BHP, Fortescue, Rio Tinto and Vale, the Chinese government has asked steel mills in some 28 cities in northern China to cut production in the winter heating season – from November 15 to March 15, 2022 in order to clear the smog-blanketed sky in the region and to ensure the achievement of the country’s steel output reduction target.

Steel mills will have to follow their 2021 output cut plans  and maintain cuts of at least 30% in steel production from January 1 to March 15, 2022, from the level in the same period in 2021, according to a statement issued by China’s Ministry of Industry and Information on Wednesday.

That is actually a small relaxation of the previous edict from the government which wanted the cut in production to 2020 levels of 1.065 billion tonnes of steel to be achieved by the end of December.

The cuts, while they will reduce pollution and emissions in around Beijing and the Winter Olympics in February, also extend the 2021 Two High policy in the new year.

Iron ore prices on Tuesday fell sharply after solid gains on Friday and Monday – the price of the key indicator blend, 62% Fe Pilbara fines fell $US6.03 a tonne to a still sold $US129 a tonne.

That and the late reports of the output cut requests saw BHP shares lose 1%, Rio Tinto shares slide 3.2% and Fortescue shares (which have been boosted by its green hydrogen ambitions) slumped more than 5%.

Reuters reported “Steel production will continue to be restrained during the heating season and winter Olympics. It will be hard to see any rise in domestic iron ore consumption,” analysts with Huatai Futures said in a note before the import figures were announced.

Atilla Widnell, managing director at Navigate Commodities in Singapore, also told Reuters: “With Chinese blast furnace capacity utilization rates staying close to current multi-year lows ahead of the Beijing Winter Olympics, we envisage this will result in a material build in portside (iron ore) inventories over the next few months.”

The “Two-High” policy is a key driver of China’s decarbonisation strategy, especially with the National Development & Reform Commission (NDRC) confirming on September 16 its guidance for energy consumption based on gross domestic product per person (GDP per capita) and China’s total consumption policy to 2035.

Nine provinces failed to meet energy consumption reduction targets in the first half of 2021 – Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi and Jiangsu.

As a result, new construction projects in these provinces, which have high pollution levels or consume a lot of energy – including steel projects – have been banned from applying for construction permits, while others already taking place face strict inspections and curbs on production.

That 30% cut means there will be no increase allowed in crude steel production in 2022, effectively capping it at 2020’s level or below (a looming property crisis will cut demand for steel next year as well).

The news came as data on Wednesday from the country’s Customers Administration revealed a 1.9% fall in the volume of iron ore imports into China last month.

China imported 95.61 million tonnes of it last month, compared with 97.49 million tonnes in August and 108.55 million tonnes in September 2020, the Customs data confirmed.

In the first three quarters of the year, China imported 841.95 million tonnes of iron ore, down 3% from the first 9 months of 2020 and on track to end the year well under 2020’s 1.17 billion tonnes.


For more on China’s solid trade performance in September, see separate story

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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