Iron ore pressure on Hong Kong: The domestic steel companies digestive capacity decline

Since February 2009, the bustling activity at Tianjin Port has defied expectations, showcasing a "reverse trend" in the global economy. Lu Yongqing, who oversees loading and unloading operations at the 11# berth of Tianjin Port South, recalls that the volume of cargo arriving far exceeded predictions. “We were handling two ships a day in March, mostly from Australia,” he said, his hands still covered in dust after a long shift. Tianjin Port, one of China’s top three iron ore hubs, has seen a sharp rise in inventory following the government's 2008 directive to reduce stockpiles. According to Zhang Wei, head of the bulk cargo department at Tianjin Port Group, as of April 14, iron ore stocks reached 5.5 million tons, with over 3 million tons in transit—showing an upward trend. In October and November 2008, inventories had been around 3 million tons, at historically low levels. This surge is not isolated. Customs data shows that by March 30, China’s port iron ore stocks had surpassed normal levels by nearly 3,000 tons, reaching 68 million tons. By April, this figure climbed to 70 million tons, according to Liu Zhimei, deputy secretary-general of the Minmetals Import and Export Chamber of Commerce. The spike in imports came after a sharp drop in October 2008, when China imported just 30.62 million tons. But by March 2009, imports surged to 52.08 million tons—a 46.2% increase year-on-year, marking a record high. However, as steel prices fell, demand from domestic mills weakened, leading to a slowdown in shipments. “Now, it’s only two or three days between ship arrivals,” Lu said, reflecting the changing pace. The slowdown in steel mill production has further contributed to rising inventories. Companies like Anshan Iron and Steel, Laiwu Steel, and Tangshan Iron and Steel have all announced maintenance shutdowns, reducing output and increasing inventory pressure. Small and medium-sized steel mills, which had ramped up production due to government stimulus, are now struggling as steel prices fall. Traders, too, have played a role in the fluctuating market. With iron ore prices hitting historic lows, many saw an opportunity to buy cheap. Li Yi of Sinosteel recalled the price swings: “In December 2008, Indian ore CIF prices dropped to $64.78/ton, the lowest since 2007. Then, prices rebounded briefly, but have since fallen again.” As of April 15, Indian ore was trading near cost, at around $64/ton. Zhang Jian of Minmetals believes the current price level is unlikely to drop further, supported by both Indian and domestic mine costs. Meanwhile, traders are capitalizing on the gap between long-term and spot prices, buying aggressively when they fall below long-term contracts. Australian mines have also gained ground, offering lower prices and competitive shipping rates. The spot price for Australian ore is now around $60/ton, undercutting Indian ore’s $64/ton. This has made Australian supplies more attractive, especially as Rio Tinto and BHP Billiton expand their spot sales in China. At Tianjin Port, most recent shipments are Australian, with Brazilian and Indian sources making up smaller shares. “Almost all the latest deliveries are Australian,” said Lu Yongqing. Zhang Wei confirmed that Australian ore now accounts for over 50% of the port’s imports, with the share continuing to grow. As the market remains volatile, the balance between supply and demand continues to shape the future of China’s iron ore trade.

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