LAUNCESTON, Australia- China’s lowering of its economic growth target for 2022 to 5.5 percent seems at first glance to be bearish for iron ore prices, but there are others factors at play likely to keep upward pressure on the steel raw material.
There is little doubt that China, the world’s second-biggest economy and biggest importer of commodities, is facing headwinds, both domestic and global.
It’s not surprising that Premier Li Keqiang lowered the growth target from 2021’s 6 percent (although the economy actually expanded 8.1 percent) in his report to the annual session of parliament.
China’s priority for 2022 is “economic stability,” Li said, and it’s those words that are likely quite bullish for iron ore.
Already China is cutting interest rates, local governments are starting to boost infrastructure spending, and tax cuts are expected – all positive demand drivers for steel.
China’s iron ore imports have had a steady start to the year, with Refinitiv estimating arrivals at 83.69 million tons in February and 86.14 million in January, roughly in line with the 88.4 million from December and the 89.29 million from November.
Iron ore imports have held up in the first two months of 2022 despite restrictions on steel output as the authorities in Beijing sought to limit pollution over winter and during the Winter Olympic Games in the city.
Now that these restrictions are ending and stimulus measures are starting to flow into China’s economy, it’s likely that steel demand will rise, thus lifting iron ore imports in coming months.
Overall, the domestic backdrop looks constructive for iron ore despite the lower economic growth target, given that the likely composition of China’s growth will be steel-intensive.
External factors may also be aligning for stronger steel production in China, given the ongoing, and worsening, crisis created by Russia’s invasion of Ukraine.
