(Adds analyst quote and background)
By David Stanway
BEIJING Aug 14 Chinese iron ore production in
July slipped 1.9 percent on the month but was 11.4 percent
higher compared to last year, with high-cost domestic miners
still managing to maintain output levels despite a rapid fall in
the price of imports.
Domestic miners produced a total of 136.7 million tonnes of
iron ore in July, data from the National Bureau of Statistics
showed on Thursday, defying analysts' expectations of widespread
China's high-cost and low-grade iron ore producers have been
under heavy pressure as a result of falling global prices which
have made foreign ore more competitive and driven imports up
18.1 percent to a record 456.8 million tonnes in the first seven
months of the year.
Analysts have been watching for signs that marginal Chinese
producers are being forced out of the market as a result of a
concerted effort by global miners to ramp up supply, which has
driven prices down by 30 percent this year.
So far, however, China's iron ore output figures have defied
industry expectations and remained relatively high.
"I think the data is pretty unreliable and we don't use it,"
said Graeme Train, analyst with Macquarie in Shanghai.
"If you look at everything else, there are quite a lot of
indications that domestic production is actually pulling back.
Surveys of domestic mines show sharp contractions in utilisation
rates, and Mysteel's steel mill survey on ore usage shows that
the share of imported ore has gone up."
According to the latest Mysteel survey, domestic iron ore
made up just 4.3 percent of total steel mill inventories by Aug
14, down from 28.6 percent in late February.
According to index prices compiled by the China Iron and
Steel Association, domestic ores cost an average of 727.24 yuan
($118.2) at the end of July, compared to an average spot price
of 695 yuan for imported varieties, putting domestic producers
at a disadvantage.
Goldman Sachs said in a research note in late July that
while production from China would inevitably fall, it would not
be enough to absorb the additional supplies on the global
"In our view, the closure of high-cost mines in coastal
provinces will not be sufficient to fully absorb the growing
surplus, leading to greater competition among seaborne producers
going into 2015," it said.
(1 US dollar = 6.1520 Chinese yuan)
(Editing by Anupama Dwivedi and Muralikumar Anantharaman)