China’s iron ore appetite wanes

Australia’s big miners — BHP Billiton, Rio Tinto and Fortescue — have sought to allay fears about China’s outlook.

Loading of iron ore on very big dump-body truck.

China’s weakened appetite for iron ore and concerns about its slowing economy have been shrugged off by Chinese steel experts despite new data out of the Asian giant fuelling fears about its growth.

Australia’s big miners — BHP Billiton, Rio Tinto and Fortescue Metals Group — yesterday sought to alleviate fears on the outlook for the economic titan at the China Iron and Steel Association conference in Qingdao, in China’s east.

Rio Tinto’s president of iron ore Asia, Alan Smith, said that the net implication of the “new normal” for China was a trend toward slower but higher quality growth.

“Our current assessment is for GDP growth to trend from levels of around 7 per cent a year toward realised growth of between 4 and 5 per cent by 2030,” he said.

“During the period we are talking about here, we expect that China will go from being the second largest economy in the world to the largest, effectively a doubling of their current base.”

Confidence in China took another hit yesterday after a key gauge of the country’s manufacturing activity plunged to a 6½ -year low.

Iron ore prices lost ground in offshore trade after the Chinese manufacturing data.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US56.80 a tonne, down 0.5 per cent from its prior close of $US57.10 a tonne.

Australian miners were sold off on the local bourse after the release of the data, with BHP slumping 4.4 per cent to $22.80 and Rio Tinto off 2.4 per cent to $47.99 and Fortescue Metals dropping 5.5 per cent to $1.81.

CISA’s international co-operation director Su Chanyong said he believed that China’s iron ore ­demand would remain strong ­despite the prospect of short-term economic volatility. “According to many experts they think China will grow at least 6.9 per cent,” he told The Australian.

“That is below the threshold but to me 6.9 per cent is a good ­figure. The GDP growth rate is not the only measure, but you should look at the components of that rate.

“We have to pay attention to the structural adjustments that are taking place.”

BHP’s general marketing ­manager Matthew Currie said at the CISA conference that the ­mining company remained confident that the Chinese economy would remain strong, which he said was part of the reason the miner would increase its 2015 full-year iron ore production to 250 million tones.

“Since the beginning of the ­decade China has embarked on a remarkable economic expansion drive by urbanisation and industrialisation,” he said.

Baoshan Iron and Steel Company vice president Zhang Diabao said he believed China’s economy remained in good shape despite the weaker economic and manufacturing numbers.

He said China was undergoing a major economic and social transformation, which was causing shock waves across the world.

“There has been a record low for commodity prices but do not think that cycle is normal,” he said.

“The Chinese economy is ­rebalancing and there is a new normal emerging.”

Mr Zhang added that he believed China’s steel consumption levels would start to weaken after reaching historically record highs.

Concerns about Chinese demand for iron ore and increasing supply in the market have seen the price of the bulk commodity rapidly decline over the past year. ANZ this week cut its price forecast for the steelmaking ingredient to $US52 a tonne in 2016 and $US54 in 2017, reductions of 5 and 10 per cent from prior projections. ANZ’s head of commodity research, Mark Pervan, said that he now assumed Chinese steel consumption peaked last year from a previous forecast of 2020.

“Stronger-than-expected Chinese steel exports have also weighed heavily on global steel prices — adding additional pressure to already weak iron ore and coal prices,” he said.

BHP chairman Jac Nasser warned that the volatile political and economic trends of 2014 had accelerated this year. Mr Nasser, in his note to shareholders in the miner’s annual report released yesterday, said that despite ­significant drops in commodity prices and volatility in currency and financial markets there had been continued growth in the global economy.

He added that against the ­uncertain backdrop the company had set production records in 2015 across many of its operations. The chairman said that the production records, combined with a focus on productivity, had offset some of the downturn in commodity prices.

His comments came as BHP also told its investors that it ­remained committed to its progressive dividend policy.

The company said its aim was to “steadily increase or at least maintain” the dividend per share in US currency at each half-yearly payment.

Additional reporting: Wang Yuanyuan