The decline in iron ore demand in China is taking shape due to falling steel production and rising coke prices. Nikos Tagoulis, head of research at Intermodal, announced that in August, China's crude steel production decreased by 3.7 percent compared to last year, and the average daily production has also declined.
Seasonal Fluctuations and Their Impact on Demand
In the first eight months of 2026, steel production has decreased by 3.1 percent compared to last year. Part of this decline is due to seasonal factors, as high temperatures and heavy rainfall have disrupted construction activities and affected steel demand. While the CISA initiative does not reduce mandatory production, stricter discipline in production could lead to a decrease in iron ore demand.
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Iron Ore and Coke Market Status
However, in the short term, iron ore purchases are showing signs of strengthening, as Chinese mills are rebuilding their inventories to maintain blast furnace operations during the upcoming National Golden Week holiday. According to Mysteel data, Australian iron ore exports to China increased by 6.2 percent in the third week of September compared to the previous week.
At the same time, weak steel demand and high coke prices are putting pressure on mill profits. According to Mysteel, only 7.8 percent of blast furnace mills were profitable in mid-September, a significant drop from 32.5 percent at the end of August. This environment also affects mills' iron ore purchasing preferences. Due to shrinking margins, mills are less willing to pay high prices for higher-grade materials and are showing more preference for cheaper, lower-grade Australian materials.
Australia's transportation infrastructure also has a shipping advantage due to the shorter distance to China compared to materials sourced from Brazil or Guinea. However, high coke prices partially offset this shift towards cheaper, lower-grade iron ore. Coke inventories at Chinese steel mills have reached their lowest level in two years, which could lead to stronger purchases before the upcoming public holidays.
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