Good news for iron ore miners

China's iron ore imports surge in September

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 14, 2013 11:54 am AEDT

Chinese imports of iron ore and copper surged in September, with iron ore imports climbing 8% over September, suggesting fears of a slowdown have been overblown.

Customs data released in China over the weekend show the world's largest steel producer imported a new all-time high of 74.6 million tonnes of iron ore, up 8% over August and 15% over the same period last year. China has continued to produce steel at record levels, around 2.14 million tonnes each day, and forges almost as much steel as the rest of the world combined.

The majority of China's iron ore is imported and levels are rising as Chinese leadership opens up the industry to market forces, with high-cost, low quality local producers struggling to compete with imports. The world's three largest iron ore miners, Brazil's Vale, Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) are also amongst the lowest cost producers, and can ship the commodity cheaper to Chinese steel mills than the mills can source locally. Many of China's largest mills are located along the coast, away from the local mines and close to ports.

As a result, iron ore prices have defied most expectations of a slump around this time of year, with the price of iron ore steady at around US$133 a tonne. More than a few analysts had been predicting prices near US$70 a tonne in the short-term, before a rise of US$110 – US$120 a tonne over the long term.

Copper imports also surged 18% in September to the highest levels since March 2012, thanks to declining warehouse stocks. For the September quarter, copper imports rose 21.4% according to customs data. Like iron ore, China consumes a large portion of world copper supply at around 42%.

The news bodes well for smaller iron ore producers Fortescue Metals Group (ASX: FMG) and BC Iron (ASX: BCI). Fortescue, in particular, needs the commodity price to hold up so it can repay its US$10 billion in debt.

Foolish takeaway

As we wrote last month, the future looks promising for Australia's iron ore miners, with China importing 61% of world iron ore imports and fears of a slowdown looking overblown.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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