UBS Iron Ore and Coal: China — Encouraging Data but Early Days
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UBS observes that recent Chinese iron ore and coal demand data points are encouraging, though the firm cautions that it remains too early to confirm a sustained trend reversal. Steel production has rebounded, driving an 8% year-over-year increase in iron ore imports, which reached 102 million tonnes in May 2026, primarily supported by mill restocking activities. Crude steel output also rose 3.5% year-over-year.
However, underlying demand remains highly bifurcated. The persistent weakness in the property sector continues to drag on broader consumption, with new housing starts falling another 12%. On the metallurgical coal front, prices rebounded 2% month-over-month but remain 15% lower year-over-year, significantly limiting further upside potential.
Thermal coal consumption grew 4% year-over-year in May, almost entirely driven by power generation demands, while industrial coal usage remained flat. Domestic coal production increased 5%, keeping supply conditions loose and pressuring import price advantages. Iron ore port inventories declined by 5 million tonnes from April to 135 million tonnes, though levels remain elevated compared to the previous year.
UBS maintains a cautiously optimistic stance, noting that the apparent data improvements partially stem from a favorable base effect rather than a fundamental demand recovery. The firm awaits further monthly data to confirm the trend, closely monitoring the efficacy of real estate stimulus measures, infrastructure investment pacing, and steel capacity rationalization.
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