“China’s increasing focus on ‘ecological civilization’ has prompted the steel industry to pursue cleaner capacity that can meet increasingly strict emission standards,” Arnoud Balhuizen, the mining major’s chief commercial officer, said at the International Mining & Resources Conference in Melbourne on Tuesday October 30.
Balhuizen was referring to the Chinese government’s focus on environmental protection in its 13th five-year plan for the 2016-2020 period.
This focus has resulted in supply-side reforms for the country’s steel industry, which, combined with robust downstream demand since 2017, had led to strong profit margins for steelmakers.
These margins have in turn triggered the use of high-quality steelmaking raw materials such as iron ore and coking coal.
The preference for high-grade iron ore is reflected in the differential between the MB 65% Fe Iron Ore Index and the MB 62% Fe Iron Ore Index, which stood at $21.79 per tonne on Tuesday
BHP is developing its South Flank project in Western Australia
to raise the Fe content of its iron ore products. The project is expected to deliver its first ore in 2021, and will operate for over 25 years.
Balhuizen said that trade tensions between China and the United States will have a negative effect on the growth of both countries’ gross domestic product (GDP), “which confirms that the trade protection will create a lose-lose outcome.”
Although BHP has not experienced any material impact from the trade war, the miner has made a slight downward revision of its forecast world GDP growth for 2019 and 2020, he added.
China imposed a 25% tariff on US coal imports earlier this year in retaliation to tariffs imposed by the US on Chinese products.
But Chinese coking coal buyers have downplayed the effect of these tariffs, pointing out that China had imported just around 3 million tonnes of US coal last year - against an overall volume of around 70 million tonnes - and the availability of an ample number of alternative sources of coal.
Against the backdrop of the trade war, however, China's GDP growth during the July-September period was its slowest since 2009.
The Chinese currency has also taken a beating in recent months, with the yuan dropping to a 10-year low against the US dollar on Tuesday.
Balhuizen also underlined India’s importance as a buyer of coking coal.
He conceded that while India’s iron ore self-sufficiency coupled with BHP’s supply chain situation kept the miner from becoming a big supplier of the steelmaking raw material to the South Asian country, the nation is “a very important met coal customer going forward.”
India is set to surpass China to become the world’s top coking coal importer by 2020 amid its government’s plan to raise the country’s steelmaking capacity to 300 million tonnes per year
by 2030-31, from around 100 million tpy at the moment.
An absence of domestic coking coal reserves in India means that Indian steelmakers have to rely on imports to meet their demand for this steelmaking raw material.
The MB fob Australia Premium Hard Coking Coal Index stood at $220.82 per tonne on Tuesday
, unchanged from a day earlier.