Growth in China’s iron ore imports
In March, China’s iron ore imports came in at 80.5 million tons against February’s 67.9 million tons. This was an increase of 19.0% month-over-month. Also, year-over-year (or YoY) imports increased by 8.8%. Imports in 1Q15 were 2.3% higher YoY at 227 million tons.
To encourage these import increases, iron ore miners like Rio Tinto (RIO), BHP Billiton (BLT), and Vale SA (VALE) flooded the Chinese market with low-cost imports to displace the higher-cost domestic capacity.
Customs data and China’s iron ore imports
Chinese customs data tracks the country’s iron ore imports. This is important for investors because the data gives a good sense of the appetite for imported ore among Chinese mills and traders. Mills and traders consume about two thirds of seaborne iron ore.
This customs information impacts Cliffs Natural Resources (CLF) and other iron ore players involved in seaborne trade. The iShares MSCI Global Metals & Mining Producers ETF (PICK) invests in iron ore, so the data affects it equally. BLT is PICK’s top holding and forms 18.9% of the ETF. The SPDR S&P Metals & Mining ETF (XME) also invests in some of these stocks.
Oversupply situation continues
While there’s still an oversupply of iron ore in the system, sustained closures by high-cost mines in China and elsewhere can help revive the situation and save the day for miners.
Chinese domestic iron ore is generally of a lower grade than that of imported ore. China’s environmental regulations may force steel producers to rely more on high-quality imported ore to reduce the pollution caused by refining low-quality domestic ore.