China’s iron ore port inventory
Iron ore port inventory is a key indicator that reflects the supply and demand balance. When steel mills continually demand iron ore, inventory doesn’t build up at the port.
However, if mills don’t use up the shipments that are coming through seaborne routes, inventory piles up, indicating a weaker final demand.
Inventories are down slightly
The SteelHome China Steel Price Index collects inventory data on a weekly basis from 44 ports in China. The inventories have not been moving significantly, but they have been on the lower end.
China iron ore inventories for the week ending April 4 were 98.05 million tons as compared to 100.15 million tons a week earlier. This means they are at 1.50 times February’s steel production. This ratio is often preferred over raw inventory figures because it measures how much inventory is available in order to keep current steel production activity going. The five-year average ratio is 1.49 times the steel production figures. Traders and mills are probably expecting further price declines as iron ore miners stay determined to displace high-cost domestic Chinese capacity.
Usually, inventory levels above the long-term average suggest bad news for iron ore companies like Rio Tinto (RIO), BHP Billiton (BHP), Vale (VALE), and Cliffs Natural Resources (CLF). The iShares MSCI Global Metals & Mining Producers ETF (PICK) is also affected. Rio Tinto, BHP Billiton, and Vale make up 31.4% of PICK’s holdings. The SPDR S&P Metals & Mining ETF (XME) invests in metal and mining companies as well.