Smoke billows from a large steel plant as a Chinese labourer works at an unauthorized steel factory, foreground, on November 4, 2016 in Inner Mongolia, China. (Getty Images) 

By Ranjeetha Pakiam

(Bloomberg) — Iron ore imports by China surged to a record above 1 billion metric tons last year as unexpectedly strong steel production and lower local mine output combined to fire up demand in the world’s top buyer for cargoes from Australia and Brazil, supporting a rebound in prices.

Asia’s top economy imported 1.024 billion tons in 2016, up 7.5 percent from a year earlier, according to customs data issued on Friday: that’s about 32 tons a second, according to Bloomberg calculations. Purchases last month totaled about 89 million tons, compared with 96.3 million tons a year earlier.

Iron ore surged more than 80 percent last year as China added stimulus to sustain economic growth, bolstering steel production, soaking up rising low-cost mine supply and shredding bears’ forecasts. The outlook depends on the country’s ability to absorb even greater volumes, with Australia’s government among those seeing little scope for gains, while others see the potential for a further increase. Seaborne supply may expand again this year as Brazil’s Vale SA starts up production at its giant S11D project.

Imports should “continue to rise through 2017,” Justin Smirk, a senior economist at Westpac Banking Corp., said in an e-mail before the data. “It is all about supply, the supply of ore in the seaborne trade from both Australia and Brazil, as well as some of the smaller producers, continues to grow and as such, will continue to enter the Chinese markets.”

Iron ore with 62 percent content delivered to Qingdao, which hit a two-year high of $83.58 a dry ton last month, was at $80.54 on Friday, according to Metal Bulletin Ltd. data. Earlier in Asia, futures were mixed as the SGX AsiaClear contract for May delivery added 0.4 percent while Dalian prices fell.

‘Growing Again’

Westpac’s Smirk cautioned prices may slip even as imports continue to rise as “rather than suggesting that demand for imported ore is strong, I would argue to suggest that supply is growing again,” he said. Without a solid lift in demand, there may be a correction in prices through 2017, he warned.

Australia, the world’s largest exporter, forecast this month that prices may drop back amid a leveling off in demand for cargoes in China and rising supply. The country may purchase 1.047 billion tons this year and 1.049 billion tons in 2018, the Department of Industry, Innovation and Science estimated.

A survey of industry participants by Singapore Exchange Ltd., which offers iron ore futures, was more positive. Consensus opinion is that Chinese imports will continue to increase in 2017, as will seaborne trade overall, the exchange said in a report this month, with a majority seeing prices holding steady or rising.

As China’s imports of ore have ballooned to a record, so too have holdings at the country’s ports, which have hit an all-time high. The stockpiles surged 2.4 percent to 116.7 million tons last week, according to Shanghai Steelhome Information Technology Co.

Brazil’s Vale is due start commercial output this month from S11D, the world’s biggest iron ore project. A decade in the making, the $14 billion mine located on the fringes of the Amazon in Para state will ramp up to annual capacity of 90 million tons by 2020.

(Updates price in fifth paragraph.)

--With assistance from David Stringer To contact the reporter on this story: Ranjeetha Pakiam in Singapore at rpakiam Jason Rogers at [email protected], Jake Lloyd-Smith, Keith Gosman

©2017 Bloomberg L.P.