Iron ore ends high as China pushes cut to crude steel production

The comments from China came as Australian and Brazilian mines lifted shipments in late December, taking advantage of good weather conditions ahead of their respective wet seasons. Picture: AFP/BHP Billiton

• NICK EVANS

  RESOURCE WRITER

  
• 10:15PM DECEMBER 30, 2020
• 35 COMMENTS

China’s Industry Minister has put the dampeners on the sparkling outlook for iron ore, flagging cuts to surging crude steel production in 2021 that could reduce demand for Australian iron ore.

Xiao Yaqing flagged the cuts as part of a renewed push for capacity replacement in China’s steel industry and as part of Beijing’s move to lower carbon emissions and launch a new wave industrial development in “green manufacturing” next year, according to Chinese state media outlet Xinhua News Agency.

Mr Xiao reportedly made the comments at a conference this week, saying the country’s steel sector must “resolutely” reduce crude steel output and ensure a year-on-year decline in production.

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The report immediately hit iron ore futures traded in Singapore and on China’s Dalian exchange, with contracts in Singapore falling as much as 4.2 per cent in early trading, and down 3 per cent to $US156.40 a tonne on Wednesday evening. The most active contract traded on the Dalian exchange was down 3.3 per cent.

China’s crude steel production remains on track to top the billion tonne mark for the second year in a row, hitting 1.05 billion tonnes of crude in 2020.

Analysts had tipped crude production to lift again in 2021, to around 1.1 billion tonnes, helping buoy the strong iron ore outlook for Pilbara producers.

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The comments came as Australian and Brazilian mines lifted shipments in late December, taking advantage of good weather conditions ahead of their respective wet seasons, with shipments from Australian ports lifting to 20.1 million tonnes in the week before Christmas, from 15.8 million tonnes the previous week, according to Bloomberg data.

China’s Industry Minister Xiao Yaqing. Picture: AFP

Last week Vale and BHP announced the return of their jointly-owned Samarco operation in Brazil to the market for the first time since it was shuttered following a tailings dam collapse in late 2015, saying they expect the mine to initially produce at a reduced rate of 8 million tonnes of pellets a year.

While China’s demand for steel for its construction industry traditionally drops in January, lower than usual port stockpiles of iron ore were expected to keep prices at elevated levels as mills restocked supplies. The benchmark iron ore price soared above $US175 a tonne a few weeks ago, after Vale cut expectations for its 2021 output, but has since dropped back to levels closer to $US165.

The strong end to the year has analysts and investors salivating at the prospect of another bumper dividend season from Australian iron ore miners, with UBS analysts recently forecasting a $1.13 a share payout from Fortescue Metals. They said the company could pay out as much as $1.40 if it elected to target the top end of its dividend policy.

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Fortescue shares closed unchanged at $23.98 on Wednesday, with Rio up 50¢ to $115.78, BHP up 22¢ to $43.14, Mineral Resources up 12¢ to $36.77 and Mount Gibson Iron down 2¢ to 92.5¢.