The amount of iron ores at Chinese ports is often a good indicator for iron ore shipments. When there are sufficient quantities of iron ores at ports, China will hold off on additional imports, lowering shipping rates for transporting iron ores from major countries such as Brazil, Australia and India. Conversely, when iron ores are limited during times when inventory levels fall, it is often followed by increased orders sometime later down the road. Higher import volume points to more business for shipping firms, which supports revenues, earnings and share prices.
China iron ore port inventory falls
For the week ending March 8th of 2013, the amount of iron ores held at Chinese ports fell to 78.5 million tons from 79.3 million in the prior week, according to Shanghai Steelhome Information (a consulting firm for the steel industry, headquartered in Shanghai). Inventory levels have been falling as steel manufacturers tap into port inventories to make steel, the majority of which is used for construction of buildings in China.
Current inventory level could cancel out recent government action
The recent action taken by the government to cap property prices from rising further may possibly hurt steel demand in the short run, which will suggest lower demand for iron ores. Lower demand for iron ores mean port inventories may not fall much further. However, as current inventory is sitting near amounts seen at the end of 2010, before China went into a bear market, it is unlikely that China will be importing less iron ore in the future to reduce inventory levels.
Inventory level will assist shipping in the short to medium term
This should provide a little support to shipping rates charged for transporting iron ores across sea over the short to medium term, which will help dry bulk firms such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB) and Eagle Bulk Shipping Inc. (EGLE). It should also aid the Guggenheim Shipping ETF (SEA) that invests in shipping companies world-wide.