China iron ore import surge caused by 'fake demand'
- By David Stanway
TIANJIN, China, April 13 (Reuters) - China's iron ore imports surged in February and March because of "fake demand" brought about by stockpiling and they are likely to fall off over the rest of the year, a government official said on Monday.
"The increase in steel production in January and February didn't lead to an increase in (end-user) demand, but all ended up in inventories," Liang Shuhe, the vice-chairman of the Ministry of Commerce's Foreign Trade Department, told an industry conference in the port city of Tianjin, near Beijing.
In response to the "fake demand" at the beginning of the year, China's steel mills and traders made the mistake of increasing their orders for iron ore, leading to record imports in February and March, he said.
"In February, some of my foreign contacts told me that China's steel market wasn't doing badly... but (the increase in demand) was actually a sign of weakness," Liang said.
China's iron ore imports hit 52.1 million tonnes last month, eclipsing the previous record set in February and soaring 46 percent from March 2008. China's exports of steel products, at 1.67 million tonnes, were 60 percent down on the previous March.
"When steel output capacity falls later in the year, the demand for iron ore will also fall," said Liang.
Iron ore has been backed up at China's ports for months, with little sign of demand running down the stockpiles. That has set a gloomy background for annual price talks between China's Baosteel and the top iron ore suppliers Vale, Rio Tinto and BHP Billiton.
The Chinese price negotiations set a global benchmark, so more ore in China could affect world steel prices for the year. For more information on the talks, please click
FROM BOOM TO RUST
Analysts put the surge in iron ore imports down to irrational exuberance, suggesting that China's steel sector had responded too enthusiastically to the government's 4 trillion yuan ($585 billion) stimulus package announced last November.
"We've seen it all throughout the value chain, from the iron ore importing side through to production and down to the traders," said Graeme Train, analyst with Steel Business Briefing in Shanghai. "They all got very excited in November and December and in January and February it all fell apart."
But according to traders, trading in imported iron ore has now become a matter of survival.
"If my business was doing well, I wouldn't be here," said a representative from a foreign steel product trader on the sidelines of the meeting in Tianjin.
His company is one of many involved in shipping Chinese steel overseas, but that market is now in the doldrums, forcing him to look for other options.
"Basically Chinese steel is too expensive, and we have come here to look for opportunities in iron ore," he said.
The collapse in the steel export market has also prompted coking coal traders to adjust their business plans.
"Right now our sales aren't good," said a Tianjin-based coking coal exporter.
"Exports have been driven down and although domestic steel production is still doing okay, this has been caused by stockpiling and as soon as that stops, we could be in bigger trouble. We are now trying to get into other types of trading because of the uncertainties in coke."
So how strong is this recovery?
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