Chinese iron ore demand is forecast to fall by 6 million tonnes in November as the world’s top consumer of the raw material plans to curb steel production during the winter to meet air pollution targets, the country’s main industry body said on Monday.
Cutbacks in steel output in 28 Chinese cities are set to start on Nov. 15 and more cities may join the reductions, suggesting iron ore demand could drop by a larger extent than expected, the China Iron & Steel Association (CISA) said in a report published on its website.
China’s government has ordered the production curbs to meet environmental pollution targets to reduce the smog that typically occurs in northern China during the winter period from November to March. Some cities, including leading steel-producing cities Tangshan and Handan, have started the cuts one month ahead of the schedule.
“Taking the seasonal factor into consideration, iron ore demand will fall by 6 million tonnes in November, 4.5 million tonnes higher than October,” CISA said.
Chinese iron ore demand usually slows in November and December as steel mills schedule maintenance while construction demand falls during colder weather.
Iron ore supplies from what CISA calls the top four global miners will increase 10.95 million tonnes to 290 million tonnes in the fourth quarter from the previous quarter, weighing down the market, it added.
The miners are BHP Billiton , Rio Tinto , Vale and Fortescue Metals Group .
Iron ore prices on the Dalian Commodity Exchange fell 5.8 percent in October, down for a second month.
CISA warned that iron ore prices could be hit harder if steel mills and traders dump their stocks of the raw material.
Iron ore stockpiles at China’s main ports were at 137.87 million tonnes as of Nov. 10, up 28 percent from a year ago, according to consultants Steelhome.
Steel price are likely to rise after the Lunar New Year holiday when demand starts to recover given that steel inventories are low, CISA said.
The blast furnace utilization rate at 163 steel mills fell to 80.03 percent in October from 83.83 percent in the previous month, said CISA.
“The output cut could deepen on a routine basis given the air quality in Tangshan remains a worry, and there is little chance that mills would resume operations at blast furnaces in the short term,” CISA added.