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Overview: Why dry bulk indicators are gaining firm ground

Part 6
Overview: Why dry bulk indicators are gaining firm ground (Part 6 of 7)

Why China’s iron ore port inventory is marginally higher

China’s iron ore port inventory

An important indicator for the dry bulk shipping industry, iron ore inventory at Chinese ports indicates the short demand for iron ore imports. Importers are likely to purchase in excess when inventory levels are high. This could lead to lower demand for imported iron ore in the near future. Meanwhile, if inventory levels are low, importers seek for more imports for safe stock, which would support iron ore shipments.

Iron OreEnlarge Graph

Iron ore inventories edge marginally higher

China buys around two-thirds of the world’s iron ore. In 2014, supply of the steelmaking raw material has exceeded demand. Iron ore supply in China outpaced demand by 52 million tons in the first half of 2014, according to the China Iron and Steel Association (or CISA).

As of August 1, iron ore inventory at 44 major Chinese ports totaled 111.55 million tons—a decrease of 400,000 mt from the previous week’s inventory level. This marks the second consecutive weekly drop in inventory levels. However, it isn’t significantly lower from its record high of 113.7 million tons recorded in early July.

Buyers seek cheap cargos

Iron ore stockpiles at ports have been declining for two weeks. This suggests firm demand as buyers seek cheap cargos.

Currently, the steel market is facing a cyclically adjusted trend because it has entered the traditional maintenance period. Also, reports from Steel Orbis indicate that buyers are patiently seeking to hold their stance by the end of the month due to financial tightness, which curbs the iron ore market.

Outlook

Traders in China comment that the volume of ready iron ore stock in the country’s ports has been decreasing. They believe that the inventory at the mills is also low.

Imported iron ore—Benchmark 62% grade iron ore for immediate delivery to China—prices in China continued to trend higher recording its second straight monthly gain of 1.9% in July

ANZ forecasts that with more than 110 million tons of stocks at Chinese ports, upside in the price is expected to remain limited in the near term. It has cut its price forecasts for iron ore for this year and 2015 by 5% to $104 and $101, respectively, mainly due to faster-than-expected supply increase from Australia.

Dry bulk shippers suggest positivity

With iron ore prices on an upward trend given the buyers seeking cheap cargos, mining companies are likely to benefit. Meanwhile, the positive inventory levels are likely to benefit the Guggenheim Shipping ETF (SEA) or dry bulk shippers such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB).

Finally, let’s see how China’s real estate market is improving.

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