China's record first-quarter 2017 steel production and slowing steel exports, leading to strong implied domestic demand growth, may be unlikely to continue at the same pace.
A softer outlook for the remainder of 2017 contributed to iron ore prices falling by around a third since early March.
However, a recovery later this week in iron ore prices may run counter to the lowest expectations for Chinese steel sector performance, with analysts and industry split on eventual steel and implied iron ore demand growth in China.
The World Steel Association said Friday it expects Chinese steel demand growth to run flat this year and fall 2% in 2018 as a slowdown gathers pace.
In October, Worldsteel said it expected a 2% contraction in 2017 steel demand.
"China, which accounts for 45% of global steel demand, is expected to return to a more subdued growth rate after its recent short uplift," Worldsteel said in its latest Short Range Outlook.
"While the Chinese economic outlook appears stable and steel demand continues to remain strong in the early part of 2017, this is expected to gradually decelerate as the government tries to retighten its real estate policies."
Some iron ore mining executives and analysts this week saw relatively strong steel demand in China and pricing for iron ore holding up. April steel output may fall from Arch rates, but not as sharply as assumed by iron ore markets, a mining executive close to Chinese trade said.
"Iron ore has been oversold, there were a lot of financial shorts in the market," the source commented earlier this week.
"Iron ore prices have fallen over 30% in the past three weeks as concern over rising inventories and a more pessimistic view of future demand hurt sentiment," ANZ said in a note Friday before publication of Worldsteel's new estimates.
ANZ expects 2017 Chinese steel demand growth of 1.3% to 723 million mt and steel output rising 1.4% to 820 million mt.
The bank's earlier view already factored in the introduction of strong wide-spread curbs on property investment in multiple Chinese cities to cool construction-related demand.
China plans to continue to cut steel capacity which will aid margins, and non property-tied steel demand sectors such as autos are faring well, ANZ said.
"While there is an increased likelihood of more effective capacities being cut this year, relatively strong steel demand in China should support steel production. The fact that China will continue to stabilise growth through proactive fiscal policy suggests that the infrastructure spending programs mentioned should be well supported," ANZ wrote.
Seaborne iron ore import prices cut below $65/dry mt CFR China on Tuesday, a level which threatens profitability for nearly half of all Chinese iron ore production capacity, ANZ said. Prices had risen to $67.90/dmt on Friday for the Platts 62% Fe IODEX benchmark.
China accounted for almost 60% of global blast furnace iron production in the first two months of 2017, and imported over 1 billion tons of iron ore last year, driving the global market for the commodity. Imports of iron ore account for over three-quarters of Chinese demand.
"In the short term, negative sentiment will make it difficult to arrest the selling and for prices to stabilise," ANZ said of iron ore prices. "Once it does, we would look for prices to settle in the $70-80/dmt range for the remainder of the year."
