Iron ore port inventory
The iron ore port inventory is a key indicator reflecting the supply and demand balance. If steel mills continually demand iron ore, then inventory doesn’t build up at the port. But, if mills don’t use up the shipments that are coming through the seaborne route, inventory piles up, indicating weaker final demand.
Inventories rose marginally
The SteelHome China Steel Price Index collects inventory data from 44 ports in China on a weekly basis. Iron ore port inventories are down marginally to 108.75 million tons for the week ended November 14. This figure is higher than in the preceding week, when inventory was 107.35 million tons.
Iron ore inventories at ports for the week ended November 14 were at levels 1.48 times those of October’s steel production. This ratio is often preferred over raw inventory figures because it measures how much inventory is available to keep current steel production activity going. The five-year average ratio is 1.42 times the steel production.
Inventory levels above the long-term average suggest bad news for iron ore companies including Rio Tinto plc (RIO), BHP Billiton Limited (BHP), Vale SA (VALE), and Cliffs Natural Resources Inc. (CLF). Also affected is the SPDR S&P Metals and Mining ETF (XME).
So, based on the data points for port inventory over the last few weeks, it’s evident that there’s no fundamental improvement in the end demand for iron ore. Also, more supply is adding to inventories. Higher inventories are leading to lower prices for the additional supply coming in, because demand isn’t picking up at the same pace.