(The opinions expressed here are those of the author, a...

(The opinions expressed here are those of the author, a columnist for Reuters.)

China's demand for imported iron ore has most likely peaked, but the composition of future imports are likely to shift as the world's biggest steel producer seeks to decarbonise.

China, which buys about 75% of all seaborne iron ore, imported 1.18 billion metric tons of the key steel raw material in 2023, a record high, according to customs data.

But since 2019, iron ore imports have been locked in a fairly narrow range between 1.07 billion and the 2023 peak.

The consensus of views at last week's Iron Ore Forum in Singapore, which brought together miners, traders and steel producers, was that China's demand will remain relatively flat around current levels.

This view is based on two large caveats, namely that Beijing continues with its informal policy of capping annual steel production around 1 billion tons, and that China's domestic iron ore output remains steady on a contained iron basis, with any increase in mined volumes being offset by declining grades.

Assuming those two conditions are indeed maintained, it's hard to make a case that China's demand for imported iron ore will do anything other than stagnate, albeit at a very high level.

The question then becomes how will the market dynamics shift, as for the last two decades iron ore has been driven largely by the relentless growth of China, which saw imports surge six-fold between 2004 and 2024.

The first thing to note is that while China will remain the biggest buyer of seaborne iron ore, its dominance will slip somewhat as other steel producers emerge in Asia, especially in India and Southeast Asia.

India is the fifth-biggest iron ore exporter, but as its domestic industry expands it is likely to export less, and may even turn to being a net importer in the 2030s.

Countries such as Vietnam and Thailand are also expected to boost steel production over the coming decade, and will largely rely on imported iron ore.

However, the demand drivers for iron ore are weakening, making it more likely that supply will be the key price determinant over the coming decade.

DECARBONISATION Within that supply picture there are likely to be several factors of rising importance, namely what type of iron ore is likely to be most sought after in coming years.

Steel production accounts for about 8% of global carbon emissions, and about 16% of China's total emissions, making efforts to decarbonise the industry vital to the net-zero goals put forward by most countries and companies.

The low-hanging fruit for steel makers is to use better quality iron ore in the process, as this increases the efficiency of furnaces and also limits the need for sintering, which is the process of using heat to agglomerate iron ore fines for use in a basic oxygen furnace (BOF).

Chinese steelmakers at last week's event in Singapore were keen to show their commitment to reducing their carbon intensity, while still using much of their existing technology.

This makes sense for them as much of the steel mills' capital equipment is relatively new and has a long lifespan ahead.

One way the mills see to reduce carbon emissions is to use higher-grade agglomerates such as pellets and hot briquetted iron (HBI).

It's possible to upgrade iron ore fines, even lower grade material, into pellets and HBI, and it's furthermore possible to do this using a green energy source such as hydrogen, or a less polluting than coal fuel, such as natural gas.

Major iron ore miners are already taking steps, with Brazil's Vale VALE3.SA advancing plans to build hubs in the Middle East to produce HBI using natural gas.

There are also studies underway to use green hydrogen to produce HBI in Western Australia, where top exporters Rio Tinto (RIO) , BHP Group (BHP) and Fortescue Metals Group (FMG) have mines and port facilities.

The likely issue is whether the cost of making higher-grade material can be recovered through more efficient steel production, or whether some form of carbon taxes is needed to make the process viable. The opinions expressed here are those of the author, a columnist for Reuters.

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GRAPHIC-China iron ore imports vs SGX price:	https://tmsnrt.rs/4bkjaJg 

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