China’s industrial heartland is edging back to normality, with crude steel production up to pre-coronavirus levels according to one market forecaster, as key commodity prices and exports underpin Australia’s coronavirus economy.

Daily crude steel output among China’s steel producers grew steadily to a three-month high in the first week of April, to almost 2.7 million tonnes, according to a market survey conducted by commodity intelligence company Mysteel, as steel producers ramped up output on the recovery in local demand.

The Mysteel report said steel output remained about 4 per cent below that of a year ago, but the survey marks a key indication that China’s economy has returned to work.

Iron ore delivered to China is currently fetching about $US83 ($130.80) a tonne and, with bulk export volumes from key Australian coal and iron ore ports up for the first quarter of the year, is ­expected to underpin Australia’s export earnings despite the impact of the coronavirus across the broader economy.

Steel futures gained on Chinese markets on Monday, and iron ore futures extended April’s steady gains, suggesting solid iron ore pricing may continue despite issues elsewhere in the global economy. But while China may be ­returning to its previous strength, markets outside of Australia’s biggest trading partner remain a major risk for Australian resource companies.

Japan’s Ministry of Economy, Trade and Industry last week predicted the country’s crude steel output would plunge 26 per cent in the current quarter — to 19.4 million tonnes, the lowest levels in more than a decade — as the virus crisis gathers pace. It said it expected Japanese demand for steel materials to fall more than 18 per cent to 18.3 million tonnes, forecasting sluggish activity in the country’s construction sector despite the likelihood of construction-focused stimulus measures from the Japanese government.

Similarly, steel demand is plummeting in Europe, amid plant closures for key steel customers, particularly car makers.

Goldman Sachs analysts said the major risk to the iron ore price was demand outside of China, saying in a client note last week they expected iron ore prices to fall to around the $US70-a-tonne mark in coming months as demand ­declines.

The grim outlook outside of China has not yet flowed into the iron ore market, with Rio Tinto boss Jean-Sebastien Jacques telling shareholders at last week’s London shareholder meeting that the company’s iron ore books were still full and Rio, like its Pilbara peers, was running exports at full throttle.

The signs of a return to normality in Chinese come as local figures indicate exports of Australia’s key commodities held up in March as the coronavirus crises gathered pace.

Iron ore exports through Port Hedland — used by BHP, Fortescue Metals and Gina Rinehart’s Roy Hill for their Pilbara exports — surged to 46.7 million tonnes in March, according to the Pilbara Ports Authority. The figure was up 29 per cent from the same time the previous year, when port operations were affected by cyclones, and compared to 42.1 million tonnes in March 2018.

Thermal coal exports through the Port of Newcastle were 14.5 million tonnes, up from 13.5 million tonnes in 2019, with year-to-date exports up 2 per cent at almost 40 million tonnes.

Although Rio downgraded shipment guidance in February, from 330-343 million tonnes to 324-334 million tonnes due to the impacts of Cyclone Damien, UBS analyst Glynn Lawcock says the company’s shipments appear to have recovered from the setback, with shipping movements suggesting Rio was running at an annualised rate of close to 350 million tonnes a year in March.

Mr Lawcock said Rio’s iron ore exports were likely to sit at about 69 million tonnes for the March quarter, and lift sharply to above 85 million tonnes in the current period.

Australia’s major resource companies will deliver their quarterly production reports over the next few weeks, with Whitehaven Coal expected to report on Thursday, Rio on Friday and BHP on April 21. In March the nation’s chief resources economist tipped Australian resource exports to hit a record $299bn for the 2019-20 ­financial year.

Source: The Australian