China's Shrinking Steel Stockpiles Seen Giving Iron Ore a Boost

(Bloomberg) -- Falling steel inventories in China point to an improving outlook for iron ore through the rest of this half, according to one of the world’s top exporters of the raw material.

While demand for iron ore has been slower to rebound after Lunar New Year celebrations than in recent years, steel stockpiles are now being drawn down at a faster-than-usual pace, Fortescue Metals Group Ltd. Chief Executive Officer Elizabeth Gaines said in an interview. Inventories of reinforcement bar just capped a fifth weekly drop, according to Shanghai Steelhome E-Commerce Co.

“That will improve everyone’s confidence for the promising fundamentals for iron ore in this quarter,” Gaines said by phone on Tuesday, after the Perth-based miner reported a drop in output and rising costs. “It’s been later, but now we are starting to see those steel stocks draw down.”

China's Shrinking Steel Stockpiles Seen Giving Iron Ore a Boost

Iron ore has rebounded in April after slumping into a bear market last month amid concern over record stockpiles at China’s ports, and on signs of weaker-than-expected steel demand. Mainland mills are now preparing to boost purchases of cheaper raw materials as profitability retreats, according to Gaines, who visited China this month. That would benefit Fortescue, which produces cargoes with lower iron content than rivals including Rio Tinto Group.

Read more: Fortescue Iron Ore Shipments Drop as Production Costs Rise

“That was the message coming through loud and clear” in talks with Chinese customers, Gaines said. “That this is driven by profitability. And as soon as that profitability comes under pressure, our steel mill customers will be looking for a lower cost of input.”

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