The Chinese Cornerstone Plan and the outlook for the seaborne iron ore market in 2024

Increased steel demand in China following its rapid economic growth has resulted in annual crude steel production exceeding 1 billion tons in 2023. In order to facilitate this production, Chinese steel producers import 80% of their iron ore feedstock by sea.

In 2022, the Chinese government, in collaboration with the China Iron and Steel Association (CISA), initiated the “Cornerstone Plan” in order to enhance Chinese bargaining power and gain greater control of iron ore stockpiles, which are currently at a historic low. In 2023, supplies from Brazil and Australia were struggling to meet expectations and iron ore prices increased by almost 30% to US$140/t by end-December.

The plan addresses the shortage in the Chinese steel industry by expanding iron ore supply chain options. The goal is to source 370 mt of domestic mineral production, 300 mt of scrap steel, and 220 mt of overseas equity ore. Compared to 2020 these figures represent an increase of 100 million tons, 70mt, and 100 mt, respectively.

The projected domestic production is expected to fall short of the target. Mysteel (a Chinese steel market data provider) projects additional domestic iron concentrate production of only 21.47 million tons in 2024 and 30.85 million tons in 2025. The domestic Chinese annual output had been lowered in the light of safety concerns following several accidents in 2023.

According to Mysteel, iron ore prices are expected to be around US$110/t in 2024, while the cost of domestically produced iron ore concentrate stands at around US$80/t.

The Cornerstone Plan will benefit the shipping market as China aims to increase its investment and active acquisition of mines overseas, such as in iron ore projects in West Africa. Examples of such projects are Baosteel Bomi in Liberia and Winning Simandou in Guinea.

The changes to the future trade patterns of Chinese iron ore imports and increase in shipping distances will be positive for the dry bulk shipping market. Smaller and medium sized bulkers will be competitive in the short term. Whereas in the future, it is expected that in the wake of improvements to port facilities, larger vessels such as Newcastlemaxes will come to dominate the trade routes.