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UPDATE 1-China July iron ore output defies expectations of sharp drop
August 14, 2014 / 9:31 AM / 3 years ago

UPDATE 1-China July iron ore output defies expectations of sharp drop

(Adds analyst quote and background)

By David Stanway

BEIJING, Aug 14 (Reuters) - 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 shutdowns.

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 market.

“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)

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