Fortescue, BHP and Vale optimistic China will support demand for steel and iron ore

China’s biggest iron ore suppliers are optimistic about Beijing’s plans to roll out policies and stimuli to bolster the steel industry as the country faces economic headwinds and a struggling property industry.

Last week, Beijing featured more such stimulus policies including an additional 300 billion yuan ($44 billion) in allowances for infrastructure spending and bank investment – on top of the 300 billion yuan already announced at the end of June.

Although there is uncertainty about the strength of steel demand and production in China, miners such as Australian group Fortescue Metals say there are no signs so far that demand plummeted given the low levels of iron ore inventories in Chinese ports.

“The market is cyclical, it’s usually driven by the outlook for steel production in China…and we’ve seen China last year produce just over a billion tonnes of crude steel,” he said on Monday. Fortescue CEO Elizabeth Gaines on CNBC’s “Capital Connection.” , following the publication of the company’s annual results.

“We believe China is likely on track to produce a similar amount of crude steel this calendar year.”

Iron ore is a key ingredient for steelmaking, while steel is a raw material in many Chinese industries, including the real estate sector.

A slowdown in steel demand and production may indicate weaknesses in the Chinese economy and have hurt the profits of iron miners who depend on the Chinese market, the largest consumer of iron ore in the world.

Profits for Chinese industrial companies rose at a faster pace in October, the statistics bureau said on Nov. 27, 2021, providing a buffer for a faltering economy battered by soaring commodity prices. Pictured, a worker counts cast steel pipes to be shipped aboard at Lianyungang Port in Lianyungang, China’s Jiangsu Province.

Wang Chun | Visual Group China | Getty Images

Last year, China produced 1.033 billion tonnes of crude steel, the first annual decline since 2016. Domestic steel production for the first seven months of this year is down 6.4% year-on-year.

In its forecast at the end of last year, China’s Metallurgical Industry Planning and Research Institute said it expected China’s 2022 production to slow to 1.017 billion tonnes — a decrease of about 1.5% compared to the previous year.

Despite the volatility in steel demand in China so far this year due to Covid lockdowns, Fortescue’s iron ore supplies reached a record 189 million tonnes in its 2021/2022 financial year, enabling the company to hit its second-highest profit on record of $17 billion for the same period, financial results showed.

Approximately 88% of Fortescue’s iron ore sales are destined for China.

The company’s profits, however, were lower than last year’s $22 billion due to falling iron ore prices, which had responded to easing economic conditions in China this year.

A spokesman for Fortescue said that while there are uncertainties about steel production in China, the company believes that “increased infrastructure investment, continued support from government policies and a new relaxation of Covid-zero policies” will continue to drive steel demand and therefore production.

Other key iron ore suppliers were also positive about China’s industrial sector.

BHP’s British-Australian chief executive, Mike Henry, said when releasing BHP’s annual results two weeks ago that he expected China to be “a source of stability for demand for materials premieres over the coming year, with political support gradually building”.

He said even during major shutdowns in the second quarter of the year, Chinese furnace utilization rates – or steel mill activity – were resilient.

Expecting the real estate sector’s recovery to “take a little longer,” Henry said, however, there were tailwinds in the Chinese economy amid weaker global conditions.

“So we believe, and continue to believe, that as China comes out of lockdowns, a bit more stimulus is being provided, and all the policy settings that we’re seeing in China right now are aligned with that. Including the recent meetings and what has come out of those, that we will see a recovery in the Chinese economy,” he said.

Brazilian miner Vale, another major supplier of iron ore to China, has also taken a positive attitude towards China.

Vale Executive Vice President Iron Ore Marcello Spinelli said on an earnings call in late July that he believed China was still committed to infrastructure investment, even though there had been a delay. He also said that Beijing was likely trying to resolve the crisis in the real estate sector.

“They’re talking this week about property as a security issue in China…so there’s another level of engagement…and so we don’t see any hard ground in the property, probably soft ground,” a declared Spinelli for the last time. month.

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