Iron ore rises to nearly $100 a tonne as China eases custom checks
The price of iron ore, the main ingredient for making steel, rose to nearly $100 a tonne on Thursday as China announced plans to streamline customs checks.
Starting from June 1, China’s General Administration of Customs said mandatory quality assessments for imported iron ore would be phased out and replaced with a system where buyers would request official inspections.
Australian producers — the world’s biggest exporters of iron ore — immediately welcomed the move, which they said would accelerate clearance procedures. China is the world’s biggest consumer of iron ore and the top producer of steel.
BHP said: “Our customers will have a greater option to choose which inspection service to use for iron ore imports and whether to do it from the load port or the discharge port, potentially speeding up the process for all parties.”
Elizabeth Gaines, chief executive of Perth-based Fortescue Metals Group, echoed those comments and noted that the measures were part of broader “efficiency reform measures” developed by China’s government over the past five years.
Australia has been concerned that the value of the commodity could be damaged by simmering tensions between Beijing and Canberra over the origins of the coronavirus pandemic.
China has already imposed punitive export tariffs and bans on beef and barley exports from Australia and could slap import restrictions on coal, according to local media reports on Thursday.
The Global Times, the state-run Chinese newspaper, recently warned that Australian iron ore imports could also be hurt by the political tensions between the two countries.
China relies on Australia for more than 60 per cent of iron ore imports. Given that shipments from China’s other main supplier, Brazil, are down 11 per cent this year, analysts say Beijing has few alternative sources of supply for the country’s giant steel industry.
“The Chinese steel industry produced 234.5m tonnes of crude steel in the March quarter, an increase of 1.2 per cent compared to the prior corresponding quarter, supporting strong ongoing demand for iron ore,” said FMG’s Ms Gaines.
Iron ore has enjoyed a strong run over the past month, rising more than 17 per cent to $97.75 a tonne, according to S&P Global Platts. The commodity is the main source of profits for BHP, FMG and Rio Tinto.
Andrew Glass, the head of Singapore-based consultancy Avatar Commodities, said two factors had combined to drive prices higher over the past week: the fear that supplies from Brazil, the new hotspot for the coronavirus pandemic, could be disrupted; and optimism that a huge stimulus package would be announced during the National People’s Congress, which starts on Friday.
The Brazilian state of Pará, which produces nearly 30 per cent of the country’s iron ore, has registered an alarming spike in Covid-19 cases, which analysts at ANZ estimate could put up to 80m tonnes of supply at risk.
Meanwhile, there are widespread expectations that any stimulus package announced at the NPC will benefit steel-intensive infrastructure development.
“Last year’s fixed asset infrastructure investment totalled about Rmb5.9tn ($830bn), so the additional stimulus could have a sizeable impact, with infrastructure about 27 per cent of China’s steel demand,” said Morgan Stanley analyst Marius van Straaten. He added that the bank expects a Rmb4.8tn stimulus package.