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February 20, 2018 5:17 pm JST
Iron ore defies falling global commodity prices
Rising Chinese steel demand and output cuts solidify the market
AKANE TAMURA, Nikkei staff writer
The Chinese government has ordered steel producers to reduce output as part of an anti-pollution drive. © Reuters
TOKYO -- Global stock markets are down from their recent peaks and prices for commodities such as crude oil, gold and copper are also falling. But iron ore and coking coal are bucking the trend thanks to China, the world's largest consumer of the stuff.
Benchmark Australian spot prices for iron ore are near $80 per ton, a 30% rise versus late October. So far this month, prices are up 6%. Spot prices for coking coal have also risen 5% in the first half of February, topping $230 per ton.
In 2017, China's economy grew at a faster pace for the first time in seven years, expanding by an inflation-adjusted 6.9%. That is partly thanks to higher exports. Heavy spending on infrastructure ahead of the Communist Party's congress late last year provided an additional lift.
Chinese steel exports shrank on the year for 18 straight months through January. "The fall in China's exports shows that its domestic demand is strong," said Kiyoshi Imamura, managing director of Tokyo Steel Manufacturing.
Infrastructure now accounts for more than 20% of China's total investment, a record. That points to continued firmness in steel prices.
China is pushing to curb output further. In mid-November, the government ordered steel companies to cut production in an effort to clean up the air in 28 northern cities. That prevented a glut and kept the price from falling. To sustain the cuts and raise efficiency, Chinese ironworks are increasingly using Australian ore, which has a high iron content.
In January, China's imports of iron ore totaled 100 million tons, jumping 19% from the previous month's 84 million tons, and up 8 million tons, or 9%, from the same month a year earlier.
"We are maintaining our bullish three-month iron ore target of $85 per ton," economists led by Goldman Sachs' Jeffrey Currie wrote in a report on Feb. 9.
Prices for steel inputs are rising in part because of the market's structure. Wood Mackenzie APAC Metals and Mining research director Robin Griffin said: "Coking coal is a relatively illiquid market, and is not yet a commoditized product. Price discovery is still typically done by price reporting agencies through surveys of buyers and sellers. The exchange trade is small. Because of the nature of the trade, prices tend not to be affected by macroeconomic trends, or indicators such as oil prices."
Iron ore miners in Australia are benefiting from higher p
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