Hanoi Iron and Steel (HSV) – China's largest iron ore suppliers are optimistic about Beijing's plan to introduce policies and incentives to boost the steel industry as the country faces economic difficulties and a struggling real estate industry.
Last week, Beijing introduced more stimulus policies including an additional 300 billion yuan ($44 billion) in quotas for infrastructure spending and investment – higher than the 300 billion yuan announced at the end of June.
While uncertainties remain around the strength of demand and steel production in China, miners such as Australia's Fortescue Metals Group say there are currently no signs of demand slowing due to low iron ore inventories at Chinese ports.
"The market is cyclical, it is often determined by the outlook for steel production in China and we saw China last year produce just over a billion tons of crude steel. We think China may be on track to produce a similar amount of crude steel this calendar year," Fortescue CEO Elizabeth Gaines said after announcing the company's annual results.
Iron ore is the main raw material for steel production, while steel is a raw material in many Chinese industries including the real estate sector.
Falling steel demand and output could point to weaknesses in the Chinese economy and hurt the profits of iron ore miners that rely on the Chinese market, which is the world's largest consumer of iron ore.
Last year, China produced 1,033 billion tons of crude steel, down 3% from the previous year, this is the first annual average decrease since 2016. China's steel output in the first 7 months of this year decreased by 6.4% over the same period last year.
In a forecast late last year, the China Metallurgical Industry Planning and Research Institute said it expected China's 2022 output to slow to 1,017 billion tons - down nearly 1.5% from the previous year.
Despite tepid demand for steel in China this year due to Covid-control lockdowns, Fortescue's iron ore supply hit a record 189 million tonnes in the 2021/2022 financial year, helping the company post a profit of $17 billion, just shy of the record profit of $22 billion in the 2020/2021 financial year due to falling iron ore prices and a response to weakening economic conditions. weak in China this year.
Meanwhile, about 88% of Fortescue's iron ore sales are to China.
A Fortescue spokesperson said that, while there are uncertainties about China's steel production, the company still believes that Beijing's "increased infrastructure investment, ongoing government policy support and further relaxation of Zero Covid policies" will continue to boost steel demand, thereby boosting production.
Other major iron ore suppliers are also positive about China's industrial sector.
Mike Henry, CEO of British-Australian mining group BHP, said he expected China to be a “stable source of commodity demand next year, with policy support gradually taking hold.”
Even during major shutdowns in the second quarter of this year, China's furnace utilization rate - or steel mill activity - remained resilient, he said.
However, expect the recovery in the real estate sector to take “a little longer” as the Chinese economy has struggled amid weaker global conditions.
"So we believe that, as China comes out of the lockdown, with the stimulus packages being delivered and all the policy settings that we see in China right now are consistent with that. Including the recent meetings and what happened among them, we will see the Chinese economy take a new step forward," he said.
Brazilian mining group Vale, another major iron ore supplier to China, also has a positive view towards China.
Marcello Spinelli, Executive Vice President of Brazilian mining group Vale, believes that China remains committed to infrastructure investment despite the delay. He also said that Beijing may be trying to resolve the crisis in the real estate sector.