China is the largest importer of iron ore, shipping in more than 1 billion tons a year to feed the country's mammoth steel industry, with most cargoes coming from mines in Brazil and Australia operated by Vale, BHP, Rio and Fortescue Metals Group. The zealous anti-pollution drive follows a related push to curb overcapacity that's seen some illegal mills shuttered.
The policy makers' efforts target the north, zeroing in on the so-called 2+26 cities, a region that refers to Beijing and Tianjin plus other centres. The drive is crimping nationwide steel output even as mills in the south enjoy free rein, and spurring demand for cleaner, higher-grade ore that's more efficient.
With dwindling steel stockpiles, steel prices have jumped, aiding mills' profitability, boosting their ability to pay more for inputs, including ore. Domestic mine output has dipped, supporting demand for foreign cargoes.
"If steel mills' margins stay higher for longer, mills' appetite for mainstream iron ore products will also be higher for longer," Citigroup said in its annual metals outlook. "The high-grade ore market could shift to deficit."
