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As iron ore spot prices neared $100/dmt CFR China this week, the seaborne market has seen support largely by China's rebound in demand from the coronavirus, BMO Capital Markets head of commodities research Colin Hamilton said in an interview with S&P Global Platts Friday.

Lower domestic scrap availability earlier supported higher pig iron prices in the first quarter, along with iron ore global supply restrictions tightening the market, Hamilton said in an interview.

Markets are getting some visibility around the impact of the lockdown measures, while the duration is not yet clear, he said.

"We saw the impact on China earliest, and as we exit the lockdown in China and many of the restrictions there, actually sentiment is very positive,"

"The recovery in metals demand, helped by strong policy and strong fixed asset investment has been the strongest we've seen in recent years and very surprising and at the same time, the rest of the world is going through a very weak demand environment at the present time."

Base metals prices have rebounded strongly on the back of China's imports in the past two months and forward policy.

The supply of platinum and other precious metals had fallen, with demand supported by monetary policy in China, Hamilton said.

The World Steel Association reported Friday pig iron rates in the first four months of the year in China increased 1.4% year on year to over 271 million mt, while crude steel output rose 1.1% to 319 million mt.

Pig iron output fell in markets across Europe, North and South America, Japan, India and South Korea, over the same period.

As these markets idled furnaces, Hamilton sees China accounting for around 80% of global seaborne iron ore trade at the current time, up by around 10 points from its typical ratio.

Companies in markets such as Europe and Japan, mainly buying off contracts, lowered iron ore purchases, as steel output fell due to weak consumer demand caused by lockdowns.

China duties

With China focusing more on trade relations with Australia after calls for an inquiry on the origins of the coronavirus, slapping tariffs on barley and banning some Australian beef products, there has been a renewed focus on China's seaborne coking coal imports.

Australian miners had benefitted from a weaker Australian dollar in March close to 1.75 to the US dollar, and building trade tensions may yet be seen in rates hovering around A$1.54 on Friday.

"In the short term, the market's complacency on a possible new trade war warrants caution on the Australian dollar," ING bank said in a report this week.

Australia is the largest iron ore supplier to China, and this year, Asia's biggest economy, has been even more pivotal for coking coal exporters.

BMO expects to see more protectionism of industries from both sides, and while trade flows from Australia to China won't change, there may be challenges and additional costs to export into China, Hamilton said.

Outside the potential for specific duties, geopolitical tensions generally hurt trade and economic growth, with commodities demand ultimately hit, he warned.

Analysts at investment bank ANZ saw the tighter review on coal imports and volumes "as a normal move by China to support its own domestic industry" rather than a worsening of Australia-China relations.

Coking coal trade was likely to be caught up, even though restrictions are targeted at thermal coal imports, ANZ said in a report.

"Imposing restrictions is part of NDRC [National Development and Reform Commission] efforts to stabilize coal prices in China," ANZ said.

Indian coal

With the India lockdown extending into mid-May, China's earlier large seaborne imports limited volumes left to absorb extra coal as domestic coking coal prices remain relatively high.

China has a small reliance on coking coal imports over domestic supply, and with lower demand elsewhere, benchmark FOB Australia premium HCC prices have remained close to a multi-year low last month.

Longer-term, demand in India and ASEAN economies may support high quality met coal and lead China to lower imports, while global spot demand has weakened since the coronavirus, Hamilton said.

"With the India lockdown coking coal is having to look for a new home, with China import restrictions it's become harder to see where it goes," Hamilton said.

BMO sees more US coking coal supply exiting the seaborne market.

"US supply has been crucial in balancing seaborne coking coal markets for 40 years now and that continues to be the case," he said.