At the start of 2016 the outlook for Chinese iron ore import growth appeared challenging, given slower import growth in 2015, expectations of continued Chinese steel capacity cuts and China’s ongoing gradual transition towards a more diversified, mature economy. However, Chinese seaborne iron ore imports went on to significantly outperform expectations in 2016 and break the 1bn tonne mark along the way.
A Surprising Response
Against a backdrop of moderating growth in China’s steel consumption and Beijing’s measures to reduce the country’s surplus steel capacity, Chinese iron ore import growth performed at a level far higher than many had expected last year. In early 2016, expectations were shaped by both a 2% drop in the country’s steel output and a five year low in Chinese iron ore import growth in 2015, as well as plans for continued cuts to steel capacity. However, Chinese seaborne iron ore imports outperformed expectations in 2016, increasing 7% to a record 1,008mt. This was the key driving force in total dry bulk trade growth in 2016 and was largely stimulated by three key factors.
Steel Output On The Up
The first key driver of record Chinese iron ore imports in 2016 was a stabilisation in the country’s steel output, following a 2% drop to 804mt in 2015. The country’s steel output continued to decline in 1H 2016, given limited domestic demand. While Chinese steel mills increased steel products shipments to foreign markets by 9% y-o-y in 1H 2016, the 57mt shipped in the period was insufficient to support overall Chinese steel output growth. Chinese steel products exports also dropped 14% y-o-y to 51mt in 2H 2016, following the introduction of tariffs by several importers, but also due to firming Chinese steel demand. Indeed, a government stimulus package launched in 1H 2016 boosted steel use and saw steel prices rise sharply. This supported Chinese steel mills and stimulated an overall 1% increase in the country’s steel output to 815mt in full year 2016.
Domestic Iron Ore Mining Cuts
A further driver of Chinese iron ore import growth in 2016 was the drop in the country’s domestic iron ore output. Financial pressure on Chinese miners from depressed iron ore prices throughout much of the year contributed to a 6% y-o-y decline in the country’s domestic iron ore output, to a six year low of 1.3bn tonnes in full year 2016, according to NBS data.
Swelling Ore Inventories
Finally, Chinese iron ore stockpiling increased sharply in 2016, partly reflecting improved expectations for steel output at Chinese mills as the year progressed. By the start of January 2017, iron ore inventories at 41 Chinese ports reached 114mt, up 19% from the start of 2016 and the highest level in over two years.
So, far from expectations of a difficult 2016 given China’s wider economic developments and measures to reduce surplus steel capacity, Chinese seaborne iron ore imports recorded firm growth to hit a record 1bn tonnes last year. While the sustainability of this stronger growth may be questioned, in 2016 at least, China performed above expectations and overall was the bright spot for seaborne dry bulk trade once again.