Iron ore prices to edge down
----Interview with Hong Wei
General Manager
Zhengzhou Asia Europe Industrial Co.
- Founded in 2018, Zhengzhou Asia Europe Industrial Co., Ltd. is mainly engaged in the trading business of iron ore produced in Russia, Chile, India, Malaysia, Turkey, South Africa, Mozambique, Zambia, Indonesia, Iran and Pakistan, with a stable monthly supply of more than 100,000 tons.
- Asian Metal: Welcome to take our interview Ms. Wei. Please introduce your company briefly.
- Ms. Wei: Zhengzhou Asia Europe Industrial Co., Ltd. was established in 2018. Since its inception, the company has established long-term and stable business partnerships with domestic and foreign mines, steel mills, and traders, and the ore business has grown rapidly. At present, we have established stable cooperative relations with suppliers of mineral products in Russia, Chile, Ukraine, India, Malaysia, Turkey, South Africa, Vietnam, Mozambique, Zambia, Guinea, Papua New Guinea, Indonesia, South Korea, Iran and Pakistan. The monthly supply of iron ore stays stable at more than 100,000 tons. At present, we mainly supply clients in Hebei and Shandong.
- Asian Metal: What is the current structure of China's iron ore import?
- Ms. Wei: China's dependence on imported steel raw materials is relatively high. Due to insufficient domestic iron ore resources, the dependence on imported iron ore has remained at above 80%. In 2022, China imported a total of 1.107 billion tons of iron ore, a year-on-year decrease of 1.5%. From the perspective of imports by countries, the top ranked countries are Australia, Brazil, South Africa, Peru, Canada, Chile, India, Russia, Mauritania, Sierra Leone, Kazakhstan, and Mongolia. The proportion of iron ore imported from Australia and Brazil records about 86%. In 2022, among mainstream countries where China imported iron ore, the import from Australia increased by 5.1%, while that from Brazil decreased by 4.3%. Among other non-mainstream countries, the imports of iron ore from Peru, Russia, and Kazakhstan slightly increased, while other countries experienced various degrees of decline, with India, Ukraine, and Mongolia showing the most significant reductions. After India announced to raise its iron ore export tariff in May 2022, its iron ore export basically stagnated. Due to the Russia-Ukraine conflict, there was no import from Ukraine since October 2022, making Ukraine withdraw from the top ten non-mainstream countries in 2022. Due to the epidemic and transportation issues, Mongolia's iron ore export also witnessed a significant decline in 2022.
- Asian Metal: Compared to mainstream imported iron ore from Australia and Brazil, what are the advantages of non-mainstream materials in terms of price and other aspects?
- Ms. Wei: Non-mainstream imported iron ore may have some price advantages compared to materials from Brazil and Australia. For example, for iron ore with the same grade, the prices of some non-mainstream materials are about 20% lower than those of mainstream ones. But the specific price advantage depends on the specific situation, as the price not only depends on the quality and supply of the products, but also is influenced by other factors such as market supply and demand, transportation costs, tariffs, etc. For example, the transportation costs. Non-mainstream imported iron ore are located in countries or regions closer to China, resulting in relatively low transportation costs, which can reduce overall costs and give them a price advantage. Another factor is resource taxes and fees: Countries or regions where non-mainstream materials are located may have different standards for resource taxes and fees. If these countries have lower taxes and fees, they may have an advantage in terms of price. Production costs also account for a key factor because non mainstream materials may have lower production costs, so in some cases, their prices may be more competitive than those from Brazil and Australia. However, it should be noted that these price advantages are not absolute. Brazil and Australia also have unique advantages in terms of iron ore quality and supply chain stability. Therefore, steel producers need to consider multiple factors comprehensively when choosing to purchase iron ore, including quality, price, supply chain stability, etc.
- Asian Metal: China's iron ore imports increased by 6.2% YoY in Jan-Nov of this year. What do you think is the reason for the significant increase?
- Ms. Wei: In November this year, China's iron ore imports totaled 102.743 million tons, a month-on-month increase of 3.4%; The cumulative imports of iron ore from January to November this year reached 1.078 billion tons, a year-on-year increase of 6.2%. The growth of China's iron ore imports is mainly driven by the significant increase in demand for iron ore from domestic steel mills. With the end of the epidemic, the operating rate of domestic steel mills has maintained a high level since the beginning of this year, and the production of steel mills has increased. According to the statistics, from January to October 2023, China's crude steel production reached 874.695 million tons, a year-on-year increase of 1.4%; The steel production amounted to 1.144 billion tons in the given period, a year-on-year increase of 5.7%.
- Asian Metal: Since mid August, the import prices of iron ore in the international market have significantly rebounded. What do you think is the reason for the price increase?
- Ms. Wei: Since mid August, the prices of iron ore in the international market have continued to rise. Taking the price of Australian iron ore fines 62%min (CNF China) for example, it has increased from around USD103/t in mid August to the current USD135/t, with a cumulative increase of over USD30/t, an increase of nearly 30%. The rise in iron ore prices in the international market is mainly because of the strong demand from domestic steel mills. Since August, encouraged by national macroeconomic stimulus policies, the domestic steel market has rebounded, with steel prices starting to rise, and steel mills' production enthusiasm has also increased compared to July, thereby driving an increase in demand for imported iron ore.
- Asian Metal: How about the current demand for imported iron ore from domestic steel mills?
- Ms. Wei: Due to the continuous increase in prices of raw materials such as iron ore these days but the lack of significant improvement in demand in the steel market, the production enthusiasm of domestic steel mills has decreased, and their demand for iron ore will also slow down. Compared with the first half of this year, the domestic crude steel production declined in the past two months. For example, the domestic crude steel production in September and October was 82.108 million tons and 79.092 million tons respectively, while the monthly production before August was above 90 million tons.
- Asian Metal: How do you think of the price trend of iron ore at the end of this year and in the first quarter of next year??
- Ms. Wei: Looking ahead to the first quarter of next year, the iron ore market may witness a pattern of strong supply and weak demand. From the seasonal trend in recent years, the overall iron ore supply situation in the second half of the year will be better than that in the first half of the year; In terms of demand, with the recent resurgence of production restriction policies in some regions and the limited production during the heating season starting from November to December in previous years, the production of molten iron, also known as iron ore demand, is expected to decline in the first quarter of next year. In the end, with a decrease in marginal demand and a rebound in supply, port inventory may gradually increase. It is expected that the prices of imported iron ore would decrease slightly in Q1 of 2024. Taking the Australian iron ore fines 62%min as an example, the prices would probably drop to around USD120/t CNF China
- Asian Metal: Does your company have any new plans in terms of product and market development?
- Ms. Wei: In terms of business, we will focus on stable operation and continue to follow up on non-mainstream iron ore in Southeast Asia. The transportation distance is close, and the price is discounted on the reference quotation of mainstream materials. Additionally, it is less affected by market fluctuations. While developing iron ore business, we will also explore precious metal minerals from other regions. Although the transaction volume is small, the profit margin per ton will be higher than iron ore.
