China has been progressively tightening the noose around iron ore for months now. With some success given recent falls in iron ore prices. Measures so far have included:
- Releasing strategic reserves.
- Punishing speculators and limiting futures bidding.
- Constraining steel output which will lower iron ore imports so long as the curbs are wide enough to prevent cheating. Which, in the past, they have not been.
- Removing restrictions on scrap imports. These did lift lifted scrap imports a little but also drove up prices making them uncompetitive and stalling volumes.
- Removing steel export rebates to keep more output within its borders. In theory, this will drop both steel and iron ore prices in China because it is the marginal price setter for both, even if it lifts prices elsewhere. The problem with this strategy so far is that Chinese steel is so competitive that after a brief plunge in export volumes they rebounded.
Today we get news that China is now mulling export tariffs for steel. The mooted numbers are 10-25% aimed to launch in the September QTR.
Presumably, having failed once, authorities have done their research and determined that this will be enough to materially cut exports.
The news sank Dalian futures by 2% and took the gloss off the runaway Big Iron bid on the ASX.
More to the point, it shows a distinct determination to materially dent the iron ore bid in China. This goes to the conclusion that China will ultimately succeed in this endeavour as demand weakens and supply rebounds through H2.
