Global Miners are Optimistic that China’s stimulus would support steel and iron ore demand

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China’s largest iron ore suppliers are upbeat about Beijing’s plans to implement measures and incentives to support the steel industry as the country faces economic headwinds and a faltering real estate sector.

Beijing announced further stimulus programmes this week, including an additional 300 billion yuan ($44 billion) in quotas for infrastructure spending and bank investments, on top of the 300 billion yuan announced at the end of June.

While there are questions about the robustness of China’s steel demand and production, miners such as Australia’s Fortescue Metals Group say there are no evidence yet that demand has collapsed due to low levels of iron ore stockpile at Chinese ports.

China’s largest iron ore suppliers are upbeat about Beijing’s plans to implement measures and incentives to support the steel industry as the country faces economic headwinds and a faltering real estate sector.

Iron ore is a vital ingredient in steel production, and steel is a raw material in many Chinese sectors, including the real estate sector.

So yet, there are no signs of a collapse in steel and iron ore demand, owing to low levels of iron ore inventories at Chinese ports.

“The market is cyclical, and it is largely determined by the outlook for Chinese steel output… “As we saw last year, China produced well over a billion tonnes of crude steel,” Fortescue CEO Elizabeth Gaines said on CNBC’s “Capital Connection” on Monday, following the release of the company’s annual results.

We believe China will produce roughly the same quantity of crude steel this calendar year.

Iron ore is a vital ingredient in steel production, and steel is a raw material in many Chinese sectors, including the real estate sector.

A drop in steel demand and output may indicate vulnerabilities in the Chinese economy and harm profitability for iron ore miners depending on the Chinese market, the world’s largest iron ore customer.

Despite volatile steel demand in China this year due to Covid lockdowns, Fortescue’s iron ore supplies reached a record 189 million tonnes in its 2021/2022 fiscal year, allowing the company to hit its second highest earnings on record of $17 billion for the same period, according to financial results.

China accounts for around 88% of Fortescue’s iron ore sales.

However, earnings fell short of last year’s $22 billion due to dropping iron ore prices, which had reacted to China’s deteriorating economic conditions this year.

According to a Fortescue spokeswoman, while China’s steel production is uncertain, the business believes Beijing’s “increasing infrastructure investment, continuous government policy support, and further relaxation of Covid-zero restrictions.

Other major iron ore suppliers expressed optimism about China’s industrial sector.

During the release of BHP’s annual results two weeks ago, Anglo-Australian BHP Chief Executive Mike Henry stated that he expected China to be “a source of stability for commodity demand in the year ahead, with policy support gradually taking root.

During an earnings call in late July, ale’s Executive Vice President Iron Ore Marcello Spinelli stated that despite the delay, China is remains committed to infrastructure expenditure. He also stated that Beijing is most certainly working to resolve the property sector crisis.

“They’re talking about property as a securities concern in China this week… so there’s another degree of commitment… and so we don’t see a hard land in property, probably a soft land,” Spinelli said last month.

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