• The first quarter continued the 2019 trend for China to actively import relatively cheap metallics and semi-finished steel, but can this be sustained? The answer to this question will come down to the price-competitiveness of the products, we believe. One additional incentive to continue to import metallics this year compared to the situation a decade ago is almost non-existent inflows of imported ferrous scrap. In a longer run, before any significant actions are taken to stimulate the shift from integrated steelmaking to the electric-arc furnace (EAF) route in China, price-attractiveness will remain key in determining a future trend for metallics and semis imports into the country. In the very near term, a rebound of steel production at mini-mills after easing of the lockdown restrictions is beneficial for metallics demand. Although steel margins have widened lately, potentially providing support to increasing production at mini-mills, falling prices for domestic heavy melt scrap in China may put some pressure on metallics imports.
  • Iron ore import volumes in March were relatively steady at 86 million tonnes, taking the total for the first quarter of 2020 to 263 million tonnes. This compares with 261 million tonnes in the first quarter of 2019 and some 10 million tonnes per quarter more in the corresponding periods of 2018 and 2017. Most recently, Chinese mills have not been particularly active in buying iron ore before the Chinese national Labor Day holiday on May 1- 5. Adding to the downside risks to prices have been steady volumes from Australia and shrinking iron ore consumption in India. In India, the lockdowns have further contributed to a downward trend in prices because of the continued output from domestic mines; steel mills have not kept up their consumption levels during the lockdown, leading domestic iron ore producers to sell to Chinese mills. As a result, Chinese ports have recorded a rise in Indian-origin iron ores with double digit month-on-month gains in the last two months.
  • News of supply-side constraints have provided support to iron ore prices, but the large decline in coking coal production and sales revealed by leading suppliers during the past quarter seems to have limited effect. Among the leading producers so far to reveal calendar first-quarter 2020 results, most have recorded substantial production and/or sales declines compared with the previous year even if activity happened to beat their expectations. On the demand side, while we understand that in China, the integrated recovery continues and buyers are becoming increasingly dependent on or at least attracted to seaborne supplies. It is not clear that other key coking coal and coke consumers will follow the same path in Asia.

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