Stringent environmental regulations could reduce Chinese iron ore imports and steel production

Chinese iron ore imports increased by 7.5% in 2016 to 1.04 billion tonnes, supported by the recovery in the domestic steel sector and a decline in the iron ore production. Chinese iron ore production (after it is converted to correspond with the world average Fe content) decreased by 22% in 2016, to 159Mt due to the closure of small-scale and high-cost mines. The market outlook for seaborne iron ore trade is directly linked to the Chinese domestic iron ore production, which is in turn dependent on government policies and economic growth. Increasingly stringent environmental regulations could further limit domestic production of iron ore. A faster pace of closures can substantially reduce global seaborne trade, and consequently has implications for the iron ore price and Australia’s exports. Despite reaching a record high in 2016, China is not projected to be a substantial source of import demand growth in the outlook period, with imports projected to remain steady at 910Mt in 2020.

Chinese steel production is projected to decrease by 0.4% in 2017 to reach 805Mt supported by the capacity cut targeted at 50Mt for the year. Chinese government’s Iron and Steel Industry Adjustment and Upgrade Plan (2016–2020) released in November 2016 mandates to cut the capacity of 100 - 150Mt and the top ten producers in China to produce 60% of production by 2020. As a result of all these, Chinese steel production is projected to decrease to reach 790Mt by 2020.