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By Clyde Russell
LAUNCESTON, Australia, Oct 3 (Reuters) - China's appetite for imported iron ore continued unabated in September, with vessel-tracking data showing seaborne arrivals should at least match the strength shown in recent months.
Shipping data compiled by Thomson Reuters Supply Chain and Commodity Forecasts shows that 85.24 million tonnes of the steel-making ingredient arrived at Chinese ports in September.
This was higher than the 82 million tonnes estimated for August and only slightly below the 85.67 million for July, which was the highest so far this year.
Vessel-tracking data doesn't exactly tally with official Chinese customs numbers, with the 647.8 million tonnes recorded for the first eight months of 2016 being 3.26 percent below the customs figure of 669.65 million tonnes.
Preliminary customs data for September is expected to be released next week.
Much of the difference can be explained by vessel-tracking not capturing iron ore imports that arrive by land, such as the 3.6 million tonnes from Mongolia in the first eight months, or from countries where ascertaining what ships are transporting is challenging, such as North Korea.
Nonetheless, the September ship data suggests that iron ore imports by China, which buys about two-thirds of global cargoes, remained robust, thereby underpinning the sustainability of this year's rally in prices.
Spot Asian iron ore .IO62-CNI=SI ended at $55.20 a tonne on Sept. 30, staying near the middle of the roughly $11 range it has traded in since June.
Prices are up 28.7 percent so far this year, although iron ore is down from its peak in 2016 of $68.70 reached in April amid what many analysts believed was a hot-money speculative bubble in the Chinese domestic market.
The fact that iron ore managed to hold the bulk of its gains so far this year, even after the authorities in Beijing took steps to limit speculation on the country's domestic commodity exchanges, suggests that it has found a more secure footing.
Much of this is built on the fact that China is producing more steel than forecast, with crude steel output gaining 3 percent in August from a year earlier, the sixth straight monthly increase. the first eight months of the year, steel output was 536.3 million tonnes, down a mere 0.1 percent over the same period in 2015, and casting doubts on Beijing's commitment to reduce excess capacity.
It's unlikely that steel output will decline over the whole of 2016, given that prices remain solid, with benchmark Shanghai rebar SRBcv1 up 34 percent in yuan terms so far this year.
Steel demand is being led by a revived housing sector in China, with ANZ Banking Group saying in a research note on Sept. 29 that it expected this cycle to last 12-18 months, suggesting relatively strong steel demand lasting through 2017.
If this is the case, it's further likely that demand for imported iron ore will remain robust as well, which suggests that the price gains seen so far in 2016 are sustainable.
IRON ORE SUPPLY KEY TO OUTLOOK
Much will depend on how much new supply is added to the seaborne market, and whether this will be sufficient to exert downward pressure on prices.
Brazil's Vale VALE5.SA , the world's biggest iron ore shipper, expects to add 28 million tonnes in 2017, representing about 58 percent of the global addition to seaborne supplies, the company said on Sept. 28. supply from Australia, the top exporting nation, may be muted, with the major additions coming from the ongoing ramp up of the 56-million tonne a year Roy Hill mine in Western Australia state.
Views within the industry are mixed, with Vale and number three Australian miner Fortescue Metals Group FMG.AX expecting the current stability in the market to continue, while second-ranked Australian producer BHP Billiton (LON:BLT) BHP.AX said in August that prices were still more biased to the downside.
In some ways iron ore prices are currently trying to be like the baby bear's porridge, not too hot and not too cold.
If they rise too much, it's likely Chinese domestic output that has been rendered uncompetitive will return to the market, but they also have to be wary of cooling by adding too much supply.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC on China customs data for iron ore imports vs vessel-tracking numbers
http://tmsnrt.rs/2dkOY5X
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Joseph Radford)