LAUNCESTON - The contrast between China's weak steel production but robust iron-ore imports is continuing and is starting to look like a structural shift rather than a temporary dislocation.

China, which produces just over half of the world's steel, recorded output of 86.63-million tons in April, down 2.8% from the same month in 2025 and the weakest April figure since 2018.

For the first four months of the year steel production was 331.12-million tons, a drop of 4.1% from the same period last year.

However, iron-ore imports rose 8% in the first four months of the year to 418.6-million tons, according to official data.

April imports of the key steel raw material were 103.9-million tons, down 0.8% from March's 104.74-million but actually slightly higher on a per-day basis given April had one day less than March.

May imports are expected to stay relatively strong, with analysts at DBX Commodities estimating seaborne arrivals of 104.67-million tons.

Explaining the lacklustre steel production is relatively straightforward given the ongoing weakness in property construction and declining exports, with shipments dropping 9% in April from the same month last year to 9.5-million tons.

For the first four months of 2026, steel exports slid 9.7% to 34.2-million tons.

The strength in iron ore imports can be put down to both temporary and structural factors.

INVENTORIES BUILD

The main temporary factor is the rebuilding of inventories, with port stockpiles monitored by consultants SteelHome holding near record highs.

Inventories were 160.35-million tons in the week to May 22, up a touch from the prior week's 160.34-million and still close to the record high of 165.67-million reached in the week to March 20.

Inventories typically build toward the end of each year, peaking early in the new year before declining toward the middle of the year as steel production ramps up to meet construction demand.

Since the 2025 low of 131.05-million tons in late July, stockpiles have gained 22%.

The question for the market is whether inventories will exhibit their normal seasonal pattern and draw down heading into the northern summer, or whether soft steel output will keep them elevated compared to prior years.

The Iran war and the subsequent threat to fuel supplies in Asia from the ongoing effective closure of the Strait of Hormuz may also have encouraged Chinese steel mills and traders to import more iron-ore on the view that future supplies may be disrupted.

A lack of volatility in iron ore prices may also boost import sentiment, with Singapore Exchange contracts locked in a narrow band anchored around $105/t for the past ten months. The front-month contract ended at $109.09/t on Monday.

The longer-term factor driving iron ore imports is the gentle decline in China's domestic iron-ore output, which is exacerbated by weakening ore grades, which means that even the same volume of ore yields less iron content.

China's iron-ore output was 326.8-million tons in the first four months of the year, down 1% on the same period last year, according to MySteel data.

This follows a drop of 2.8% in 2025 to 983.- million tons from 1.04-billion in 2024.

China's domestic iron-ore contains around 20% to 30% iron, meaning it has to be upgraded to match imported grades of 60% to 65%, a process that is costly and energy-intensive.

It's likely that China's domestic iron-ore will continue to decline, meaning that imports will make up a larger share, assuming steel output remains largely steady.