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China may cut iron ore imports by 79 mil mt/year over next 5 years: analyst

Highlights

Domestic ore, scrap to boost iron supplies under 5-year steel plan

Steel accounts for 15% of China's carbon emissions

China's iron ore imports are likely to fall by around 79 million mt/year from 2020 over the next five years, in line with the aims of the country's five-year plan for the steel industry, Jinshan Xie, an analyst with Shanghai-based research firm Horizon Insights, said during a webinar organized by Horizon and the Singapore Exchange SGX June 30.

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Imports will fall as China develops its own iron ore mines, which, together with local scrap production and pig iron, could eventually meet more than 45% of the country's total iron demand in 2025, compared to 37% in 2020, Xie said. However, the country's iron ore import levels will still remain above 1 billion mt/year, she said.

China imported a record 1.17 billion mt of iron ore in 2020, up 9.5% on the year, according to data from the country's General Administration of Customs, as construction and infrastructure demand boomed on COVID-19 recovery stimulus, leading steel production to grow. The nation's crude steel output reached 1.064 billion mt last year, up from 2019's 995.40 million mt, according to the World Steel Association.

Fifty iron ore mine projects in China are reported to be currently under construction, planned or expanding, with a total capacity of around 340 million mt/year, which could increase the country's iron ore concentrates production by 105 million mt/year. The country is seen as having the potential to supply 22% of its domestic iron ore demand in 2025, up from 19% in 2020.

The surge in the iron ore price over the past year is seen to have made Chinese iron ore reserves -- which are typically low-grade -- more profitable to mine.

S&P Global Platts assessed the 62% Fe Iron Ore Index at $218.40/dry mt CFR North China on June 30, up $4.30/dmt on the day. The price reached an all-time high of $233/mt on May 12.

Iron ore prices are expected to remain at high levels this year, according to Horizon Insights, with "some relief in the fourth quarter as supplies from Australia and Brazil ramp up." This could lead to China's port inventories reaching 135 million mt by the end of the year, Xie said.

Steel growth curbed on emissions

Steel production accounts for 15% of China's total carbon emissions which has made the industry a target for controls under the country's current five-year development plan, Xie said. The Ministry of Industry and Information Technology has prohibited further expansion of steel refining capacity in the 2021-25 period, and for this reason production is expected to peak within the next two years, after polluting steel capacity replacement plans are completed, the analyst said.

The slow-down in steelmaking growth should allow domestic steel prices and profitability to remain at a "healthy" level, she said.

Scrap supplies growing

In a move to meet the emissions goals, the steel sector's scrap consumption is also expected to rise, Xie said. The goal is to raise production via electric arc furnaces to 15%-30% of total crude steel output during the five-year period, compared to a 10% level at present, with 30% of this production coming from scrap. BOF mills will also need to increase their scrap usage, in order to meet the targets, she said.

Scrap consumption has recently increased by 30 million mt year on year, mainly fueled by domestic and "more elastic" supplies, Xie said.

Total scrap demand is expected to grow from 100 million mt/year in 2020 to 355 million mt/year by 2025, she said.