China’s challenge with iron ore

Iron ore prices have remained volatile since hitting a record high in May 2021. With uncertainties persisting on both the supply and demand side, price fluctuations look set to continue.

China’s Iron Ore Dependency

China is the world’s largest consumer of iron ore, and despite being the third largest producer, it still imports around 80% of the iron ore it uses each year. The biggest producers of iron ore are Australia, Brazil and China, which collectively account for around two-thirds of global output.

China imported a total of 1.12 billion tons of iron ore in 2021, down slightly from 1.17 billion tons in 2020, according to government data. The drop in demand was largely driven by lower steel production in China, as the government placed constraints on the industry in a bid to reduce carbon emissions.

Going forward, China’s demand for steel, and by extension iron ore, could be impacted by conflicting factors. On the one hand, the country’s zero-COVID policy could lead to ongoing lockdowns, particularly in the face of the highly contagious omicron variant, which would impact economic activity and reduce demand. On the other hand, with data for March 2022 pointing to slowing economic growth, the government is set to introduce stimulus measures to boost the economy. The Communist Party’s Politburo recently stressed the importance of meeting annual economic goals, and increasing infrastructure construction to help boost growth. A rise in infrastructure construction would boost demand for steel, and its raw ingredient, iron ore.