The lower grade iron ore prices are rising globally while mid and higher-grade iron ore prices are adversely impacted in the global market. It was mainly because of restocking of lower grade iron by Chinese manufacturing mills ahead of a seasonal pickup in production. Chinese manufacturing mills are giving preference to the lower grade iron which is cheaper in the market as compared to the higher iron ore.
This change of preference from higher grade iron ore to cheaper lower grade iron ore has created a downward trend in the higher-grade iron ore prices.
As per the data by the General Administration of Customs, a ministry-level administrative agency within the government of the People's Republic of China, the iron imports in China fell by around 1 percent from 1.075 billion tons in 2017 to 1.064 billion tons in 2018. The Chinese manufacturers were getting impacted from the lower steel margins which came from using the higher-grade iron ore which is expensive in the market as compared to the lower grade ores. The falling profit margins of Chinese steel markets have prompted them to reduce their imports. It is expected that China may reduce its iron consumption this year due to the decline in the production of Steel. Further, the steel and iron traders are taking extra caution in the present scenario, and they are only buying that much of the iron which they actually need, as they don’t want to increase their risk by buying more in the current unstable scenario.
The lack of import of higher-grade iron ore by the world’s leading steel manufacturing market will also impact the Australian Mining and Metal industry which is one of the largest exporters of iron ore in the world.
China, which is currently in between a trade war with the US, is expecting its policymakers to take additional stimulus measures to support the economy of the company.
As China is one of the biggest importers of metals and minerals, Australian mining companies have always been targeting China as one of their main distributors and consumers.
Australia’s mining and exploration companies like Syrah Resources Limited and Altura Mining Limited are directly and indirectly running their operations in China. Syrah Resources Limited is having a binding term sales agreement with a Chinese company, Qingdao Taida-Huarun New Energy Technology Co. Ltd for the of supply 20kt of natural graphite to the Qingdao which will is helping Syrah Resources to penetrate its product in China. Another company Altura Mining Limited has been exporting spodumene concentrate to its offtake partner Lionergy Limited in China. All these transactions by the Australian companies give an idea of how important the Chinese market is for Australian companies and Australian investors. The Australian investors need to keep a close eye on the Chinese policymakers who are expected to announce new stimulus measures very soon. The S&P/ASX 300 Metals and Mining (Industry) is down by 1.5 percent today (i.e., 16 January 2019) with BHP Group’s share price declining of 0.817 percent and RIO Tinto’s share down by 0.712 percent.
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