Why Is China Importing So Much Iron?

Quartz's Gwynn Guilford reports that China's year-on-year imports surged to 10.9% in July at $168 billion and all because of iron ore imports, speculated to serve as collateral for bank loans:

But wait—what exactly was China importing so furiously in July? Heaps of iron ore, it seems. Imports of the metal leapt to a record 73.1 million tonnes (80.5 million tons), up 26.7% on the previous year. That’s more than it imported during the many months of the infrastructure bonanza between 2009 and 2012, when the government pumped $11.2 trillion into the economy:Some think this means the economy is stabilizing; “steel demand is quite strong” (paywall), Maquarie analyst Graeme Train said. But it’s weird, because China’s businesses really don’t need new steel. It’s so hard to find buyers that steel mills are now storing 225,000 tonnes of steel, up 1.8% from last year. By one estimate the industry has a fifth more production capacity than it needs. And of China’s major steel mills, 40 out of 86 operated at a loss in H1 2013.And yet: one answer might be that Chinese steelmakers are keeping their furnaces going not to build more skyscrapers, but quite simply as proof that they’re busy so they can keep lines of credit open with banks, as Reuters reports—probably to avoid defaulting on existing loans.[Source]

However, The Wall Street Journal adds that the iron may also be used as steel for the 1 trillion yuan infrastructure projects that the government planned last September:

The increased demand from the construction sector may have come from the delayed kickoff of projects authorized under Beijing’s stimulus injection in fall last year, coinciding with relatively loose credit conditions in the second half last year.“Our view is that a combination of the lagged effect of a pick-up in property sales that we witnessed in the second quarter of 2012 through the first quarter of 2013 and the approvals for infrastructure projects in 2012 that are getting executed drives steel consumption and consequently iron ore real demand,” Barclays Research analyst Ephrem Ravi said.The government in September last year said it would spend 1 trillion yuan on infrastructure stimulus projects.[Source]

 

August 11, 2013 5:17 PM
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Categories: Economy