Chinese Iron Mines Report Much Lower-Than-Expected Production Resumption, SMM Surveys

SHANGHAI, Mar. 2 (SMM) – China's iron ore market got off a strong start in the near year. As of Mar. 1, the Platts 62% Fe iron ore index climbed to $93 per tonne after rising above the previous high of $89 per tonne on February 13, and then hovered around $90 per tonne, with the index averaging at $89 per tonne in February.

Many market players expected domestic iron mines to speed up production resumption at current high profits, and with rapid output increment on the way. But, SMM survey finds that large production resumption at domestic iron mines will not happen until after the NPC&CPPCC sessions, which fall in early March every year, and the resumption at mines in north China will be even delayed to late March due to cold weather.

China to See Iron Ore Price Corrections in Some Regions, SMM Predicts

According to SMM survey, few mines in north China, including Liaoning and Hebei, restarted production, and only those with ROM inventories remained online. One iron mine in Liaoning, after using up on-hand ROM inventories, bought ores from neighboring regions for production needs, but finally decided to suspend production in mid and late February due to low quality. Utilization rates are expected to fall slightly from the pre-holiday level as production days are less than 28 days in February. Those mines are expected to return online in late March.

SMM survey also finds that uses of explosives have been restricted with the nearing of the NPC&CPPCC sessions, disrupting production at mines in Liaoning, Shandong and Hebei. Open-pit mines in Liaoning have received the notice from the government, which requires them not to use explosives during the meeting period, with supply suspension. Meanwhile, some mines in Xingtai, which halted production before the 2017 Chinese New Year holiday, will not be allowed to return online until after passing safety production inspections. Considering production restrictions during the meeting period, those mines generally plan to resume production after mid March.  

Stringent government inspections also serve as a key factor behind slow resumption in some regions, SMM survey shows. In Shandong, many cities, including Laiwu, Linyi and Zibo, are the National Health City, and the local government has always implemented strict environmental protection inspections, with high requirements for air quality. Despite high profits, mines in the region, which fail to pass the government inspections, are unable to come on stream, except few ones arrange production secretly. In Hebei, resumption plans at many mines have been also frustrated by stricter inspections. In addition, some mines chose to stand on the sidelines due to lack of cash liquidity and expectations over price declines.

To sum up, production resumption at domestic iron mines is lower than expected due to weather, cash liquidity and government inspections. Resumption at mines in Anhui is relatively higher, but output is limited. SMM expects large production resumption at domestic iron mines to occur in mid or late March. By then, output of domestic ore will grow with higher utilization rates, and market prices will also come under downward risks.

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