Slower China iron ore imports seen weighing on freights

Slower iron ore imports into China are likely to pressure world dry freight rates in the near term, with many mills in the country worried over sharp falls in domestic steel product prices. Shipping officials saw little in the Far East to support the benchmark Baltic Exchange Dry Index, which had pared losses since late last week following a sharp fall. China, the world's top steel producer and consumer, was placing few spot orders for iron ore as the government looked determined to curb expansion in energy-intensive sectors.
Despite the bearish bias, freight prices are still historically firm with key trading routes up more than 500 percent from the lean years of 2001 and 2002.
Analysts have said the market is retreating but is following a similar climbdown to last year when Beijing intervened to rein in its red-hot economy.
Prices rebounded later to smash records for a second time in a year, with surging Chinese ore imports a key factor.
Shipping officials and traders expected no major pick-up in freight rates or Chinese iron ore imports at least until the second half of this year.
Chinese exports of steel products, which helped the country avoid oversupply at the time of credit tightening a year ago, were also falling sharply because of softening global steel demand and Beijing's policy to discourage such exports.
"I cannot see increased iron ore requirement from mainland China in the coming months," said another shipping official in Hong Kong. "Maybe in the second half of this year, higher iron ore requirement may raise freight rates again."
The first shipping official said: "The most important thing is the domestic demand. And it does not seem to be so strong...The steel mills say exports are also coming down at least by 30 percent compared with last year."
To deal with China's crippling energy shortage and pollution, the government cut a series of tax rebates for exports of energy-intensive semi-products such as long steel products from the start of May.
The steel industry is seen as one of the top targets of Beijing's macro-policy as crude steel output jumped by 23.8 percent year-on-year to 77.8 million tonnes in the first quarter despite a 1.4 percent drop in fixed asset investment.